Paul Davidson, USA TODAY
Published 2:17 p.m. ET Feb. 1, 2021
President Joe Biden signs a pair of executive orders meant to offer stopgap economic relief to an economy still being hammered by the coronavirus. "We have to act like we're in a national emergency," Biden said. (Jan. 22)
The U.S. economy is expected to reach its pre-COVID-19 level by mid-2021, sooner than anticipated, and unemployment is poised to fall more rapidly as a result of a milder downturn and earlier recovery from the pandemic, according to the latest estimates by the Congressional Budget Office.
That doesn’t mean the economy will be made whole after the ravages of the health crisis because output will still be below where it would have been had the outbreak not occurred. But the nation’s gross domestic product is rebounding faster than forecast.
GDP is projected to rise an average 1.7% annually from 2020 to 2024, after adjusting for inflation, above the 1% average the CBO estimated in July.
After ending 2020 at 6.8%, the unemployment rate should fall to 5.3% by the end of this year, the CBO said, well below the 7.6% the agency predicted in July. Before the crisis, unemployment had fallen to a 50-year low of 3.5%. And the U.S. isn’t forecast to recover its pre-pandemic employment level until 2024.
The labor force – which includes people working and looking for jobs – has decreased in size as many laid-off people stopped looking for jobs because of a tough market, illness or caring for sick relatives. CBO expects the labor force to return to its pre-crisis level in 2022
The CBO attributed its generally brighter forecast to a downturn that was “not as severe as expected” and an initial stage of recovery that “took place sooner and was stronger than expected.”
The agency also credited the $900 billion COVID relief package and $1.4 trillion omnibus spending bill that Congress passed late last year. The relief measure extended unemployment benefits and provided more aid to struggling small businesses, among other provisions.
Retail sales bounced back sooner than anticipated earlier this year. (Photo: Christian Petersen / Getty Images News via Getty Images)
As a result of the health crisis, states last March ordered restaurants and other businesses to shut down or scale back while many Americans voluntarily avoided public gathering spots, leading to the steepest recession on record. But about 75% of the lost output was recouped in the second half of last year after most businesses reopened, notwithstanding surges that prompted many states to reinstate restrictions for varying periods.
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After contracting by 2.5% from the fourth quarter of 2019 to the fourth quarter of 2020, the CBO expects GDP to grow 3.7% in 2021. Last week, the Commerce Department said a different measure of GDP that averages the four quarters declined 3.5% last year, its worst showing since 1946.
The Federal Reserve’s preferred measure of inflation isn’t expected to rise above the central bank’s rough 2% target until after 2023, prompting the Fed to begin raising its near-zero benchmark interest rate sometime after mid-2024., the CBO said