This index highlights the importance of limiting the spread of the virus while maintaining or improving the level of mobility. Our effectiveness in managing this virus will continue to be a primary determinant of economic growth in the U. S. How well do we follow health protocols of social distancing and mask wearing? These questions will help determine how quickly we return to higher levels of engagement and, as a consequence, how fast we recover from this pandemic.
They also depend heavily on continued fiscal support, as well as the timing of a potential vaccine that is effective and can be widely administered. The strength in consumer goods spending is significantly different from prior recessions. In past recessions, consumer spending on services has typically remained steady while durable goods consumption has declined. Dallas Fed economists believe that the resilience of consumer spending during this pandemic has been bolstered by a substantial level of fiscal relief, particularly in the form of one-time payments and supplemental unemployment benefits. As a result, aggregate personal income levels have actually exceeded pre-COVID levels, something unique to this recession. Of course , a key risk we are watching carefully is the potential waning of unemployment benefits and other forms of fiscal relief, which could cause more typical recessionary dynamics to emerge.
Dallas Fed economists expect continued growth through the rest of this year. We expect that 2020 GDP will show a contraction of approximately 3. 0 percent and that the unemployment rate will end the year at approximately 7. 5 percent. Inflation, as measured by core personal consumption expenditures, is expected to be running at approximately 1. 6 percent by year-end 2020. We forecast that the U. S. economy will grow by roughly 3. 5 percent in 2021 and that the unemployment rate will decline to approximately 5. 7 percent by year-end 2021. Inflation is expected to modestly accelerate, increasing to approximately 1. 8 percent by year-end 2021. These forecasts are, of course , highly uncertain because they are heavily dependent on the path of the virus and the level of adherence to public health protocols, such as mask wearing and social distancing.
As a result, these workers have been much more vulnerable to job losses and losses of income. In a world where technology and technology-enabled disruption is accelerating, improving the adaptability of lower-income workers is likely to be a major challenge. In the months and years leading up to the pandemic, I spoke regularly about some of the key structural challenges facing the U. S. economy (see the essay “Economic Conditions and the Key Structural Drivers Impacting the Economic Outlook, ” Oct. 10, 2019). Sluggish workforce growth due to aging of the population has created a headwind for GDP growth. Finding ways to improve workforce growth is likely to be critical to improving GDP growth in the U. S. Sluggish productivity growth has also created headwinds to economic growth. These investments will particularly help to improve the future adaptability and employability of those with lower levels of educational attainment.
The Federal Open Market Committee is the branch of the Federal Reserve System that determines the direction of monetary policy. The Fed chair said he is optimistic for an economic recovery, adding that a post-pandemic economy could even see some “exuberant spending” that pushes inflation higher. “When the time comes to raise interest rates, we will certainly do that. We have seen in this pandemic that job losses have disproportionately impacted those with lower levels of educational attainment. In April, at the height of the pandemic, those individuals with less than a high school diploma had an unemployment rate of approximately 21. 2 percent, while those who had completed college with a bachelor’s degree had an unemployment rate of approximately 8. 4 percent. This disparity reflects the fact that those with lower levels of educational attainment may be more likely to be employed in person-to-person service sector jobs and, as a consequence, are less likely to be able to work remotely.
It is our view that this MEI measure is a good proxy for the direct impact of the pandemic on economic activity and highlights trends in the economy. Dallas Fed economists believe that the MEI is highly correlated with the path of the virus, especially when cases are rising.