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Morgan Stanley sees ‘resilient, and self-sustaining’ recovery in 2021

Morgan Stanley economists released their 2021 economic outlook for the U.S., in which they expect momentum and vaccine availability to propel the economy. As such, the labor force participation rate should improve, while recovery in services and continued strength in housing remain key supports for PCE. As for the Fed, the firm expects the central bank to ‘take its foot off the gas pedal’ by reducing the pace of its asset purchases beginning in 2022.

Video Transcript

MYLES UDLAND: This is the time of year when every bank comes out with their outlook for the year ahead. But Morgan Stanley out today, this is the head of the vaccine news calling for a resilient, self-sustaining recovery in to 2021, 6% GDP growth. And, Julie, I think it's interesting to see this call on the backdrop of what has so far been a pretty solid bounceback in the economy, absent the kind of stimulus I think so much of us have called for. And I suppose that the vaccine news today merely bolsters the confidence that Ellen Zentner and the team over there have, in this outlook.

JULIE HYMAN: Indeed, it does seem like. I mean, one of the things that also really stands out to me here is, not just the broader economy, but job growth in particular. Unemployment rate down to 5.1% by the fourth quarter of next year, and 4% by the fourth quarter the following year. Now you know, Myles, that I've been focusing a lot on restaurants that have closed and small businesses that have closed. And even if you get a vaccine rollout by the middle of next year broadly, it's tough to see some of those businesses coming back if they can't get credit still. So I wonder where that employment is going to come from. Is it going to be new small businesses that crop up? Are all those people going to go work in tech? That seems difficult to see also, so I'm very curious about the path to get there, in terms of the jobs picture.

BRIAN SOZZI: Julie, I'm concerned about some of these growth rates mentioned in this report, these projections. EU GDP projected 5% increase next year, emerging markets up 7.4%, in China up 8%. And guys, one theme in this report and every other report that I've been seeing in terms of 2021 forecasts, two words are in focus: mass immunization. And these calls ultimately hinge on every person, essentially around the world, getting a COVID-19 vaccine, essentially all once come this spring. And that is a big, big call to be making, and a big call to be basing investment decisions on.

MYLES UDLAND: So what I find so interesting about this though, Sozzi, is that if you look at the outline here that Morgan Stanley kind of sets up for why they're bullish in the economy, obviously a vaccine is part of that story. But the savings rate is something that keeps coming up time and time again, of the cushion that US consumers have. But I do think that, Julie, your questions really around where does the growth come from, are not exactly answered. I mean, no one could answer them, right? But there are certainly like, Oh, so I guess the New York restaurant scene just goes back to the way it was. I don't think anyone really thinks that that's going to happen. Concerts are just going to happen as often as they were in 2019, no one really thinks that that's going to happen either. And so, does this durables suspending, people buying homes, buying cars, buying furniture, does that really keep up? I think there's going to be maybe an awkward transition phase here, that isn't necessarily negative but perhaps doesn't paint quite as positive a growth picture as I think some of these firms are outlining.

JULIE HYMAN: One final thing, when you're also talking about not just small businesses but theater chains, airline companies, hotel and leisure companies, people are definitely anxious to get back out there. We have seen that, right? In fatigue, with dealing with these Coronavirus restrictions. Are they anxious enough to get back out there that we are going to be back to pre-Coronavirus levels and then some for these businesses? So it's not just small businesses, it's large ones too that are probably going to go through that awkward transition phase that you're talking about.

MYLES UDLAND: I mean, think about the ancillary services associated with a company the size of Frozzi Media, just to take one example. I'm not really sure if this vaccine news changes the trajectory we all kind of think we're on for next year, which is we're still going to be working from home. And there's a lot of other jobs that come along with all however many hundred of us, thousands of us are in that building going back in every day. And so, I'm not sure if that comes back, and all these questions, again, I think are ones that are not quite as clear. Even though we are all very enthused about the possibility of there being mass vaccinations as we get to the middle of next year.