The U.S. economy will likely continue to suffer from pandemic-related issues in early 2021, but growth is expected in the back half of the year thanks in part to COVID-19 vaccines making their way to more Americans, according to Charles Schwab strategists.
“Unfortunately, in the near term, we are seeing weakening activity by virtue of the virus, even” in U.S. locations “where we haven’t had any kind of mandated lockdowns,” Liz Ann Sonders, senior vice president and chief investment strategist at the firm, said Thursday during a Schwab 2021 Market Outlook call with reporters.
The firm’s general consensus forecast is that we will see “near-term weakness over the next quarter or two tied to the virus and then a pickup in growth thereafter,” she said.
While there is “a lot of discussion about pent-up demand” among U.S. consumers that stands to help the economy, “I think the pent-up demand may have been met for the most part once the lockdowns ended on the good side of the economy,” she said.
However, “given the still-beleaguered state of services and the lack of desire to utilize a lot of services — certainly in the travel, leisure and hospitality area — I think that’s probably where we’ll see the bigger improvement from a pent-up demand perspective once we’re back in a more normal economic environment,” she told reporters.
What we are seeing is “widespread optimism right now, suggesting that a lot of really good news is priced in” to the market already, she said. That means there is a risk because “if we get something outside of this positive consensus, it could trigger a bit of a contraction.”
Longer-Term Pandemic Risks
There is potentially “positive and negative longer-term impact” related to the pandemic, even after it ends, according to Sonders.
“I think we have to keep a close eye on not just” broad labor market data, but “specifically some of the measurements that suggest” we may be seeing a potential “scarring effect” like what is traditionally seen after a major recession or other economic crisis, she said.
Data to keep an eye on includes the duration of unemployment and the percentage of people who have been unemployed more than 27 weeks, Sonders said.
Such “scarring tends to suggest that it becomes increasingly more difficult for those folks to find jobs,” she told reporters. There is probably less of a “stigma” to being out of work for so long this time because everybody chalks it up to the pandemic, she noted.
“But there’s also a higher likelihood that those folks dropped out of the labor force altogether. And tied to that would be permanent job losses,” she said.
While we have “seen a huge decline in temporary layoffs,” Sonders said, “that’s because most of the payroll gains have been people getting their old jobs back.”
As 2020 closes, “global economic momentum is fading,” according to Jeffrey Kleintop, senior vice president and chief global investment strategist at Schwab.