What's the outlook for the US economy in 2021? Alex Chausovsky, senior business advisor for ITR Economics, said all 12 of their leading economic indicators (LEIs) are now pointing up, which means we should expect the recovery to continue through the remainder of this year.
Here's what he had to say in a recent interview with FS Insider (see Leading Indicators Are Sending a Surprisingly Positive Message for 2021, Says ITR's Alex Chausovsky for audio).
LEIs on the Rise
ITR Economics tracks 12 key leading indicators, Chausovsky noted, and all are currently in rising trends. This suggests we can expect 2021 to be more favorable than 2020, he added.
There's nothing currently to suggest the recovery that we saw begin to unfold over the summer and fall of 2020 has been derailed, Chausovsky noted. Right now, the outlook is positive, with the potential for a second and even a third stimulus package continuing to add support.
The recovery will begin to feel more tangible in the second quarter of 2021, Chausovsky added, and should gain momentum into the second half of the year.
Other leading indicators ITR follows corroborate this narrative. The consumer remains strong, retail sales activity remains robust, and disposable personal income remains elevated relative to pre-pandemic levels.
“The way that we see things unfold right now, it is full steam ahead for the recovery,” Chausovsky said. “Consumers are actually still able to spend money, despite the fact that we are mostly locked up, doing so online rather than going to stores. … The CDC expects to get to about a million vaccinations per day over the next week or so. When you think about the implications of that, that's also going to be very supportive of some sort of normalcy re-emerging in day-to-day life by the second half of this year. All the evidence continues to corroborate the fact that, yes, there will be a business cycle rise in the U.S. economy.”
Covid-19 Impact Muted Going Forward
It is important to remember that the healthcare impact of the pandemic is not what has caused the economic difficulties we faced last year. Though it has been emotionally taxing and devastating to witness mass hospitalizations and deaths, the real impact has been felt through how we dealt with the virus.
The 2020 recession was a function of this response, Chausovsky stated. We completely shut down the economy in the second quarter of 2020, with many businesses forced to close for weeks and sometimes months at a time.
Right now, we’re seeing that despite the obviously horrific numbers in terms of infections, hospitalizations and even deaths that are happening on a daily basis, the restrictive measures that we've put in place in the United States are nowhere near as severe in terms of their impact on the economy as they were in the second quarter of last year, Chausovsky stated.
Closures are concentrated in bars, restaurants, gyms, and anywhere people congregate. Outside of these, most businesses are operating as normally, he added.
“Yes, they (businesses) certainly have some challenges from a staffing perspective that they’re dealing with,” Chausovsky said. “But companies by and large are able to run extra shifts, switch things up and bring people back from furlough. From an operational disruption perspective, it's not having nearly the same kind of impact as what we went through in the second quarter of 2020, which is what's allowing the U.S. economy to continue to persist in that rising trend that we've been calling for since last year.”
The U.S. Economy Still Resilient
Resilience, perseverance and creativity are the key attributes the U.S. economy possesses that have driven the relatively robust rebound from the recession, Chausovsky stated.
Retail sales have remained strong, even as brick-and-mortar has suffered, he added. Online retail has taken the driver’s seat, highlighting the changes in consumer habits. Spending is shifting online, even for products that we used to buy in-person such as cars and groceries.
Another factor is the continued strength we’ve seen in disposable personal income, Chausovsky stated. Typically, in a recession of this magnitude, disposable personal income declines significantly. Instead, with the government stimulus packages that we saw enacted, we saw an unprecedented increase in disposable personal income, relative to where we were even before the pandemic.
“The resiliency and the perseverance of the U.S. economy, driven primarily by consumer behavior—consumers have been the absolute engine of this recovery relative to more industrial-geared countries—has been phenomenal to watch,” Chausovsky said. “It does speak to the resiliency of the economy in the face of this crisis."
Prior to the events of 2020, ITR saw more difficulty emerging in the 2022 to 2023 timeframe. Now, however, as a result of the pain we felt through last year’s recession, we can expect a softer landing through 2023, Chausovsky stated.
Previously, ITR was anticipating a business cycle low in the industrial economy in the first quarter of this year, with a rise over the next four quarters into early 2022. After that, the backside of the business cycle would emerge again, with a cyclical peak in early 2022, and softer growth from that point on.
Though we may see softness at that point, it is important to remember that we will still be in economic growth, just at a slower pace. Effectively, the U.S. economy took the brunt of the negative economic conditions that were building up early in the cycle, during the 2020 recession. This has cleared the way ahead for a better outlook overall.
“What that means for (business owners and investors is), when you're planning for the future of your business, know that there are good, positive years ahead of you,” Chausovsky said. “We think 2021, 2022 and 2023 will be periods of economic expansion in the U.S. … Investing for the future growth of your business now is one of those opportunities. I hope people recognize that we're at the low point in the cycle, the next several years should be good, and you should be ramping up and taking advantage of this.”
To listen to our full-length interview with Alex Chausovsky, senior business advisor for ITR Economics, click here. If you're not already a subscriber to our FS Insider podcast where we interview book authors, strategists and industry experts from across the globe 3 days/week on all things economics, finance and markets...
Written by Ethan D. Mizer