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Here comes 'supernova' economic growth in 2021

Brian Sozzi
·4 min read

The textbook definition of a supernova — a powerful and luminous stellar explosion — may be applied to the 2021 U.S. economy when it’s all said and done, contends one market pro.

“I think there are a number of options. We could get a supernova of growth, kind of an 8% to 10% nominal GDP. Or we could get a couple of years of 5% nominal GDP growth,” said Baird chief markets strategist Michael Antonelli on Yahoo Finance Live.

Antonelli thinks his peers on Wall Street are underestimating the recovery in the economy as more people get vaccinated for COVID-19. With greater vaccinations in the country, it raises the prospect of pent-up demand on the part of consumers being unleashed on goods and services. In turn, that could ignite the U.S. labor market and create a virtuous circle of economic activity.

Adds Antonelli, “I think the setup is there. I don’t want to say Roaring 20s as I think that will be overused. I do think the market is underestimating the amount of growth that Americans and globally consumers are going to rush out of their homes. The last thing I want to do next year is get takeout. The last thing I want to do is another Zoom call. I want to get on a plane and see my friends in New York and California. A lot of Americans will feel the same way.”

At the moment, U.S. GDP growth estimates north of 5% next year remain an outlier among experts even though an argument could be made stock price valuations reflect the more bullish outlook put for by Antonelli.

The Conference Board, for instance, assumes a 3.6% rate of growth in U.S. GDP in 2021.

“We view this scenario as the most probable. It assumes: a) new cases of COVID-19 rise in 4Q20 / 1Q21 resulting in intermittent localized lockdowns, b) limited improvement in labor markets and consumption through the end of 2020 / early 2021, c) the implementation of limited fiscal stimulus in late 1Q21 / early 2Q21, d) the imminent approval of a vaccine in 4Q20, but no broad dissemination until 2Q21, and e) a political transition that does not result in a hit to consumer or business confidence,” wrote The Conference Board’s economist team in a new note.

The group expects U.S. economic output to climb back to pre-pandemic levels by October 2021.

For its part, the Federal Reserve recently raised its 2021 U.S. GDP estimate to 4.3% from 4%. And its latest forecast paper in October, the IMF put forth a 3.1% growth estimate for the U.S. in 2021.

United States flag on bar chart concept of economic recovery with stock market down and up. Concept of business improving after crisis such as Covid-19 or other catastrophe as economy and businesses reopen again.
United States flag on bar chart concept of economic recovery amid COVID-19. Credit: Getty

But those experts looking for much stronger than consensus economic growth (sub 4%) in 2021 is starting to pick up.

Morgan Stanley forecasts 5.9% growth next year.

“The U.S. economy, for its part, has stayed resilient through the pandemic. Consumer spending has nearly returned to pre-COVID-19 levels, while average personal incomes of U.S. households surpassed pre-pandemic levels in September, even after the first round of fiscal support expired. These and other factors suggest a sustainable U.S. recovery, even amid a difficult winter,” wrote Morgan Stanley economists.

Morgan Stanley’s forecast came two weeks or so before the passing of the latest stimulus plan. So it’s plausible to see the investment bank’s growth outlook revised higher soon.

Goldman Sachs has been consistently above consensus in recent months with its growth projection for 2021. Now, it’s incrementally more bullish amid the passing of a new round of stimulus checks.

On Monday, Goldman’s Chief Economist Jan Hatzius lifted his first quarter U.S. GDP forecast to 5% from 3% in large part from the effects of new stimulus checks to U.S. households. Hatzius left his expectation for sequentially improved GDP from the second quarter through the fourth quarter unchanged. For the full year, Goldman now sees GDP growth of 5.8% versus 5.3% previously.

Meanwhile, Jefferies’ Chief Financial Economist Aneta Markowska is modeling for 2021 GDP growth of 5%. If Trump gets his wish with $2,000 stimulus checks instead of the $600 checks passed by Congress, Markowska thinks GDP will touch 6%.

In other words, just short of “supernova” growth.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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