CONNECTICUT MONEY: Experts say better economy coming in 2021

This article was published in the New Haven Register on December 18, 2020.

As we prepare to put a tough year behind us, many people wonder what 2021 has in store.
Will promising new vaccines end the pandemic shutdown and throw the economy into fast forward
again? Or will we endure more of the same chaos and uncertainty we’ve been dealing
with since March?

Let’s take a look at what the experts are saying about the second half of this year and the
economic outlook for next year.

Real gross domestic product (GDP) grew at a turbocharged rate of 33.1 percent in the third
quarter, after plummeting 31.4 percent in the second quarter, according to the U.S. Bureau of
Economic Analysis. The stunning turnaround was fueled by business reopening's and the
resumption of activities that were postponed or restricted during the second quarter, BEA
analysts said.

The third quarter saw increases in personal consumption expenditures, imports, exports and
investments. Consumer spending was led by health care, food services, accommodations,
clothing, footwear and motor vehicles.

Disposable personal income fell 13.2 percent in the third quarter, primarily because federal
stimulus payments had increased incomes 44.3 percent in the second quarter.

Nonfarm employment increased by 638,000 jobs in October and the unemployment rate fell
to 6.9 percent, according to the U.S. Bureau of Labor Statistics. It was the sixth straight
month of declining jobless rates. Unemployment had fallen to a historic low of 3.5 percent in
the final quarter of 2019 and into February, then soared to a high of 14.7 percent in April.

U.S. stock markets experienced solid gains during the third quarter: The Dow Jones
Industrial Average rose 7.6 percent, the S&P 500 increased 8.5 percent, and the Nasdaq
jumped 11 percent.

For the year to date through Sept. 30, the Dow was down 2.7 percent, the S&P was up 4.1
percent, and the Nasdaq was up 24.5 percent.

Looking ahead, the Conference Board predicts U.S. GDP will fall 3.5 percent in 2020 as a
whole, then gain the same 3.5 percent back in 2021. “Gains in consumer spending will be
limited by high unemployment rates, but likely will accelerate again in 2021 as the labor
market heals,” said the board’s Oct. 28 Global Economic Outlook report. “Key variables
include the amount and timing of government stimulus, number of new COVID-19 cases, the
labor market recovery and the degree of volatility following U.S. presidential elections.”

Globally, the Conference Board predicts a 4.7 percent decrease in 2020 GDP worldwide will
be offset by the same 4.7 percent increase in 2021.

The International Monetary Fund painted a more optimistic picture in its October World
Economic Outlook report, predicting a 5.2 percent surge in global GDP during 2021 following
a 4.4 percent drop in 2020. The IMF’s outlook for the U.S. calls for a 3.1 percent increase in
2021 GDP following a 4.3 percent drop in 2020.

“After the rebound in 2021, global growth is expected to gradually slow to about 3.5 percent
into the medium term,” IMF analysts wrote. Keep in mind that economic predictions are
merely predictions. For example, last year’s optimistic predictions for the first half of this
year were upended by a virus that most of us could not have predicted. If you are
approaching retirement or already retired it’s a good time to reassess portfolios and financial
planning as part of your 2021 goal setting.