CBO Report Says US Economy to Return to Pre-Pandemic Levels by Mid-2021

February 1, 2021 by Victoria Turner
The U.S. Capitol. (Photo by Dan McCue)

WASHINGTON – The Congressional Budget Office estimates that the U.S. economy will return to its pre-pandemic level by mid-2021, but employment levels will not fully return to normalcy until 2024.

The nonpartisan federal agency that provides budget and economic analyses and estimates to Congress issued its report on the economic outlook for 2021 to 2031. The report projects that the gross domestic product levels will surpass the nominal 1.9% expected to a 2.6% annual growth, enabled by the economic expansion seen in mid-2020 that was “boosted” by a number of 2020 legislations and a quicker turnaround of companies adapting to the novel coronavirus pandemic.

Last July, the CBO had estimated the unemployment rate would be 8.4% by the end of 2021, which it now projects at 5.3%. This 3.1% point decrease is attributed to a quicker economic recovery than expected, but also the anticipated benefits stemming from the Consolidated Appropriations Act through its fund appropriation for the rest of this year for federal agencies’ pandemic response as well as relief for households and businesses. The report estimates that this pandemic-related funding response will bring an estimated $774 billion to FY21 and $98 billion to 2022, bolstering GDP by an annual average of 1.5% for the next two years.

Despite gradual improvement in the labor market, and an optimistic outlook the size of the civilian labor force will return to its former size by 2022 while foreseeing a gradual improvement of the unemployment rate, the number of individuals employed will still lag behind until 2024. The report also notes a gradual rise in inflation and federal funds as result of the ongoing pandemic, with the former rising to 2% at the end of 2023 and a gradual increase of the near-zero Federal Reserve’s fund rate gradual after 2024.

The economy is recovering faster, federal relief and further initiatives have kicked it into gear along with a quicker response by companies mitigating the remote work and social-distanced situations the global health crisis created. Nevertheless, the budget office is cautious that its projections can be “subject to an unusually high degree of uncertainty” not just from the unknown longevity of the pandemic and its long-term impact, but to how well these fiscal policies play out and the response to any volatility in global financial markets.

A more detailed report will be released in the upcoming months.

The full text of the report can be found here.

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