US Economy in a Snapshot Q4 2020 Report




Economic Outlook

Although the US economy started to gradually recover in Q3 2020 after the downturn sustained by the Covid-19 pandemic it was still operating below its full potential. 
The gradual reopening of the economy in Q2 2020 led to a drop in the weekly jobless claims to more moderate levels, but consumer spending remains strongly dependent on the how the disease spreads, which seems to be intensifying again in the past few weeks. The most affected States as of the end of the third week of December remain Texas (72.8 thousand infected), Illinois (52.6 thousand infected) and California (52.3 thousand infected).

The Covid-19 outbreak has changed US growth projections and consequently, the IMF has also lowered its expectations, with GDP now projected to contract in real terms by 5.9% in 2020. Projected annual growth for 2021 is 5.36%. Unemployment, which declined through to the end of Q4 2019, increased sharply as firms responded to the lockdown and the accompanying economic difficulties with job cuts. However, the unadjusted unemployment rate, which peaked at 14.4% in April, has continued to decline in recent months, falling to 8.5% in August and 7.7% in September. According to the IMF, the unemployment rate is projected to continue to decline to 7.25% in 2021 and 5.69% in 2022 as the consequences of the initial shock of the disease fade away. Inflation, measured by the core CPI, remained below 2% in July through to September assisted by a period of US dollar relative strength. Average inflation is projected to rise to 2.76% in 2021. Although the dollar index fell by 4.56% from the end of Q2 2020 to 92.95 on October, 22, the period of relative dollar strength is likely to persist in 2020.

The main risks to the US economy are related to the worldwide response to the COVID-19 outbreak. US-China trade negotiations have lost importance, partly due to the onset of the presidential elections, as the focus remains on the emergency response to combat the pandemic. Stock market indices have recovered the ground lost earlier in the year when lockdowns were imposed, but remain highly volatile and responsive to the news on infection rates and measures that are introduced affecting economic activity, which will continue to be the case for the foreseeable future.