US GDP to pass pre-pandemic peak in early 2022 and regain full employment in 2023

Recent data imply third-quarter real GDP growth near 30%, stronger than we anticipated previously. This encouraged us to upwardly revise our forecast for growth in 2020 from -4.8% to -4.0%. However, after the third quarter we expect GDP growth to fade, as catch-up spending wanes, federal and state and local fiscal support dissipates and stubbornly high COVID-19 infection rates leave states cautious about re-opening their economies and encourage continued caution by consumers and business independent of official containment measures. We project GDP to surpass its previous peak in early 2022, and the economy to regain full employment in 2023.

Our forecast assumes emergency unemployment benefits of $300/week are extended from September through December, and another round of checks is sent to households this fall. The recovery will be at renewed risk early in 2021 when this income support expires. However, we assume a vaccine becomes available in mid-2021, allowing a more viable recovery to finally then take hold.