March 19, 2021 | Economic Outlook

Economic Outlook - March 2021


  1. U.S. Gross Domestic Product is headed for a “V-shaped” recovery.  The Coronavirus pandemic took a huge toll; over 500,000 deaths in the U.S., and GDP plummeted 33% in the second quarter of last year.  Fiscal and monetary policies put money into the economy and GDP recovered enough to bring the decline to 2% for the year.  The decline reversed the modest but steady economic growth rate of prior years.  Fourth quarter GDP expanded by 4% and positive economic trends point to ongoing expansion.  Estimates call for GDP to grow at a 6% rate in 2021.

  2. A $1.9 trillion stimulus package, the American Rescue Plan Act of 2021, is making its way through Congress.  The plan includes stimulus checks to individuals, an extension of unemployment benefits, tax credits and billions in aid for small businesses and not for profits.  The House of Representatives passed the bill, which includes a contested increase in minimum wage.  The bill heads to the Senate, where the minimum wage increase is likely to be rejected.  A bill passed by the Senate that differs from that passed by the House will require another round of votes by both chambers, insuring continued debate in March, but an additional round of fiscal stimulus is likely to emerge.

  3. Government spending and aggressive Federal Reserve monetary policy have supported economic expansion and benefited the stock market.  Personal income rose 10% in January and consumer spending increased 2.4%, following the distribution of relief checks and unemployment payments.  Durable goods orders rose 3.4%, ahead of expectations and the ninth consecutive monthly gain.  Factory activity grew last month at the fastest rate since the onset of the pandemic; the Institute for Supply Management’s February manufacturing index rose to 60.8, ahead of expectations of 58.9.  Any level above 50 indicates expansion of activity.

  4. Massive government stimulus and easy money have given rise to fears of inflation.  Declining joblessness and pent-up demand can lead to rising labor costs and prices, and an overheating economy.  Bond yields jumped in February, but Fed Chairman Powell and Treasury Secretary Yellen are steadfast in their belief that the Federal Reserve has available the tools it needs to stem inflation.  Chairman Powell is focused on full employment, concerned by the loss of millions of jobs and the challenge of finding work and restoring businesses as we emerge from the pandemic.  “More than supportive monetary policy” is needed; unemployment is 6.3%, up from 3.5% before the pandemic, and most of the unemployed are among low wage earners.  In recent decades, annual inflation has remained stuck below the Fed’s 2% goal even during long periods of very low joblessness.

  5. Major League Baseball teams took to the field for the first games of spring training.  Attendance capacity is restricted and social distancing rules are in place, but MLB has a full schedule outlined, following a pared down 2020 season that did not begin until July and saw teams playing in empty stadiums.  March Madness, the NCAA basketball tournament that was cancelled last year, will also be back, in a modified but full schedule format.  And the postponed Tokyo Olympics are scheduled to take place this summer.

Sources: Bloomberg LLC, FactSet, U.S. Commerce Department, Bloomberg Businessweek, IHS iSuppli

Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.

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