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December Monthly Dashboard: Virus resurgence threatens near-term growth even as vaccines/stimulus lift expectations

December 22, 2020
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Monthly Review (Page 3)

The sharp uptick in COVID-19 infections slowed the economic recovery in November and early December even as positive vaccine news and new fiscal stimulus lifted the prospects for a strong rebound next year. Renewed, but mostly less stringent than at the start of the pandemic, state/local government restrictions to curb the spread of the virus helped to sharply slow service sector hiring for November — along with reduced seasonal hiring with fewer customers visiting stores. Consumer spending trends have worsened with rising infection worries and increased layoffs. Still, business sector surveys showed solid, albeit slower, expansion for November — but small business owners expressed concerns about the latest surge in infections. Equity markets remained on the uptrend, looking forward to expected improved economic growth and corporate earnings in the year ahead. Long-term interest rates have moved toward the top of their recent range, near their post-COVID highs, furthering steepening the yield curve with short-term rates anchored to the prospect of no Fed rate tightening for a long time.

Outlook (Page 4)

With the surge in COVID cases hurting hiring and consumer spending in the near term, growth in the first quarter of 2021 could slow sharply, although the front-loaded pending fiscal stimulus will help to offset some of this. Assuming that vaccines are widely available by mid-year, consumer and business activity should take off in the second half of 2021 and into 2022 in response to pent-up demand from the pandemic combined with the new fiscal stimulus and strong ongoing support from the Fed. Job gains are likely to remain above-average through 2021 as businesses look to fill staffs to meet rising worldwide demand — but especially for the hard-hit service sector. The full recovery from the COVID job losses, however, is expected to take several years while many long-term unemployed workers could struggle to switch sectors in a post-COVID workplace. An extended low interest rate environment spurred by Fed accommodation should help to stimulate spending by consumers – especially for interest rate sensitive products such as houses and autos – and investment by businesses, driving the economy forward even after the vaccine and fiscal policy-induced growth surge subsides.

Go deeper with the full December dashboard linked below.