Chances of another sweeping stimulus in the US, or meaningful near-term progress toward economic relief for Americans, are evaporating despite an incoming new administration, according to Yelena Shulyatyeva, senior US economist for Bloomberg Economics.
“I think the outcome of the election means the new fiscal stimulus will be much smaller, probably in the vicinity of US$500 billion to US$750 billion, and it will be targeted not so much through state and local governments, but rather toward unemployment benefits and things like that,” she reported in the Off-Highway Global Briefing, a KHL webinar sponsored by Carlisle Brake & Friction and hydraulic coupling manufacturer Faster.
Shulyatyeva says the main factors currently affecting US economic growth include the Covid-19 virus itself and the new vaccine slated for distribution late this year and/or early next year, but it’s the nation’s political response that’s the most vexing.
“The most likely scenario is we have a Democratic president and a divided Congress going into 2021, and that means significant gridlock and an inability to pass any major legislation going forward, at least for the next couple of years,” Shulyatyeva stated. “We’ll have a small fiscal package, probably late this year or well into the first quarter of next year. And that will bring slower economic growth.”
Currently, economic growth in the US is set to rebound by 3.5% in 2021 from what Bloomberg expects to be a 2.9% decline this year. “That will only slowly bring the level of economic activity back to pre-crisis levels, probably by the end of next year,” Shulyatyeva said.
Alternatively, she noted that if January run-off races for two Georgia Senate seats result in a Democratic Senate, it’s possible a unified Congress could pass a stimulus package as high as US$2 trillion in the first quarter of next year. “This will boost consumer spending and, in turn, boost economic growth to a degree of something like 5% compared to our baseline case of 3.5%.”
Despite that existing possibility, Shulyatyeva predicts years of gridlock.
“Watching the president-elect speaking at a press conference on his economic plan, I did not hear any concrete suggestions, it was just another political talk rather than a significant economic plan,” she said. “I think both Republicans and Democrats seem to agree that infrastructure is something they can focus on. But even then, we don’t see significant action on that front.”
President-elect Joe Biden has been urged to work fast to rebuild the nation’s “crumbling infrastructure” and has released an economic recovery plan, called Build Back Better, that contains a US$2-trillion clean energy and infrastructure strategy.
On a brighter note, Shulyatyeva noted very low interest rates remain very supportive of the housing industry and construction industry overall. “We don’t see a rate hike until at least 2025,” she said. “The Fed is not going to raise rates until they see sustainable pickup in inflation above 2% and we don’t see that happening until sometime in 2024.”
Total US construction is expected to decline 2% in 2020 and 3% in 2021, Scott Hazelton, director, construction at IHS Markit has reported.
Click here for a full recording of the briefing.