Economists forecast slow recovery in 2021

Economists expect the U.S. economy to slowly recover next year even after factoring in a federal emergency aid package, such as the $908 billion bipartisan proposal under discussion in Congress.

Unemployment is expected to fall to 5.4% in the fourth quarter of 2021 from the current rate of 6.7%, according to the consensus from a survey by the Securities Industry and Financial Markets Association. That is still above the 3.5% rate of February, just prior to the onset of the COVID-19 pandemic.

The survey of 27 chief economists released Tuesday found 57% of respondents expect the labor force participation rate to not return to the pre-pandemic average of 63% until beyond 2022. Another 29% do not expect it to happen until the second half of 2022.

“We are in for a difficult winter, but more fiscal support and positive developments on the vaccine front should help households and businesses look for that light at the end of the tunnel,” said Ellen Zentner, chief U.S. economist at Morgan Stanley (MS) and chair of SIFMA’s Economic Advisory Roundtable. “The promising news is that we are asking ourselves how good next year will be, whereas in 2020 the question was how bad would it be.”

The return to a pre-pandemic labor force participation rate will be a “slow slog,” she said.

“Our economists were fairly split in the survey on when we would get back to a pre-COVID level on the participation rate, but the majority of them do see that also happening,” Zentner said. “Not before the end of 2022, so while the economy has come back very robustly, it's going to take a lot longer for the labor market to return to those pre-COVID levels."

About 3.5 million Americans did not look for work and were therefore not considered to be in the labor force in October because of the pandemic, according to the U.S. Bureau of Labor Statistics.

Beth Ann Bovino, U.S. chief economist for S&P Global Ratings, offered a more cautious outlook during an S&P online presentation than Zentner's.

She doesn’t expect the national jobless rate to return to pre-pandemic levels until mid-2024.

Bovino also is expecting the economy to contract this quarter by about 2.5% and is forecasting growth of under 1% in the first three months of 2021. The National Bureau of Economic Research will not necessarily declare that as a sign of a double-dip recession, she said.

In the SIFMA survey, 20% of the economists surveyed agreed the recovery will be W-shaped with a double-dip decline.

But a majority of 53% told SIFMA they expect a "swoosh-shaped" recovery.

One key development reshaping the economy as a result of the pandemic is the widespread growth of remote work from home arrangements.

The financial services industry has become largely remote, according to Zentner.

“We all agree, in terms of our survey of economists, that it is going to remain elevated in a post-COVID world, and some of that is that we've already seen the productivity gains from going virtual,” Zentner said. “We've seen the ease of it.”

The Bureau of Labor Statistics estimated that before COVID about 15% of jobs had work-from-home capability or were taking part in some sort of work-from-home arrangement.

SIFMA’s surveys found as much as 50% of the labor force worked from home earlier in the pandemic.

“More and more folks will return back to work, but I agree with the consensus of our economists that is going to remain elevated,” Zentner said.

The U.S. Bureau of Labor Statistics said that 21.2% of employed Americans reported in October that they teleworked some in the previous four weeks because of the COVID-19 pandemic, down from 35.4% in May.

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