The Conference Board forecasts that US Real GDP growth will rise to 6.5 percent (annualized rate) in Q4 2021, vs. 2.1 percent growth in Q3 2021, and that 2021 annual growth will come in at 5.6 percent (year-over-year). Looking further ahead, we forecast that the US economy will grow by 3.5 percent (year-over-year) in 2022 and 2.9 percent (year-over-year) in 2023. This forecast is an upgrade for growth in Q4 2021, but a downgrade for growth momentum in 2022.
The upgrade in Q4 2021 GDP growth is associated with stronger than expected economic activity in October and November. Even with an acceleration in new COVID-19 cases in December (which are largely associated with the Delta variant thus far), GDP growth in Q4 2021 should be stronger than previously expected. However, this strength is likely to moderate in 2022. Our November forecast had incorporated a slowdown in growth in Q1 2022 associated with a “winter wave” of COVID-19, like early 2021. However, the severity of this new wave is likely to be larger than previously anticipated due to the emergence of the Omicron variant. This leads us to downgrade our growth expectations further for Q1 2022. Persistently high inflation and a more hawkish Federal Reserve will also create headwinds in the outlook. Prolonged inflation will eat away at consumer purchasing power over the coming year and tighter monetary policy will raise borrowing costs. These two trends will moderate growth in 2022.
While our forecast does include spending associated with the recently approved bipartisan infrastructure package, it does not yet incorporate the Build Back Better (BBB) social and climate package. The size, composition, and timing of BBB are still uncertain as is the Congress’ ability to pass the legislation. However, if the version of the bill reviewed by the Congressional Budget Office is passed and implemented in Q1 2022 we estimate that outlays would begin in Q2 2022, and that GDP growth in 2022 would rise an additional 0.4 percent (year-over-year). However, we also estimate that the package would add to inflation rates in 2022 and 2023.