Economy Is Ready To Take Off

3,2,1 Takeoff!

We may still be cooped up far more than we want to be, but if Goldman Sachs is right, the economy is ready to take off. As cited at axios.com. Goldman Sachs has raised its growth forecast to 8% for 2021. Unemployment is projected to fall to 4% by the end of 2021, 3.5% in 2022, and 3.2% in 2023. Inflation? Not perceived to be a problem. The Goldman note expects core PCE inflation to be at only 2.1% in 2023. If the United States economy grows at an 8% clip in 2021, it would be the first time the economy has achieved that growth rate since 1951.

It should be noted that Goldman Sachs has been consistently bullish relative to other firms; however, the average growth rate among Wall Street analysts is still 4.7%, as Axios notes via Factset.

Why do forecasters expect the economy to flourish in 2021? The immediate reason is that we have a dovish monetary policy (low interest rates), stimulative fiscal policy (lots of government spending), lots of savings from all those stimulus checks, and pent-up demand that will likely start to be fulfilled this summer, as vaccination and coronavirus seasonality presumably enable significant normalization of life.

In the longer run too, there are reasons for economic optimism as well. Technological innovation may be at a tipping point in spurring economic growth, central banks are increasingly overcoming their inflation jitters to push for higher employment, and the integration of China and India into the world economy, which depressed wages for many workers worldwide, has largely run its course. We’ll discuss longer-term economic prospects next week.  Stay tuned.