Articles
January 25, 2021

2021 Economic Outlook: The long road to recovery continues

[Click here for the National Restaurant Association’s updated economic forecast, which was released on March 26.]

Prior to the coronavirus pandemic, the U.S. economy was in the midst of its longest expansion on record. More than 22.7 million jobs had been added during the 10-year period ending February 2020, and the unemployment rate hovered near half century lows.

Even with that backdrop, many consumers were not overly enthusiastic about the economy. When surveyed in January 2020, 57% of adults described the economy as either ‘fair’ or ‘poor.’ Only 43% gave the economy ratings of ‘excellent’ or ‘good.’

Not surprisingly, the negative ratings soared at the outset of the pandemic in the U.S. When asked again in late April 2020, 83% of adults said economic conditions in the U.S. were either ‘fair’ or ‘poor.’

Consumers’ economic sentiment improved slightly during the summer months, before worsening as the economy softened toward the end of 2020. By January 2021, 77% of adults were back to describing the economy as ‘fair’ or ‘poor.’

To be sure, the bar for economic improvement has been set quite low by the vast majority of consumers.

GDP will recover by Q3

While the economic downturn caused by the pandemic was brief in the historical context of recessions, it was easily the largest contraction in economic activity on record. Real gross domestic product (GDP) – the value of goods and services produced in the United States – plunged at a 31.4% annualized rate in the second quarter of 2020. This followed a 5.0% drop in the first quarter, according to data from the Bureau of Economic Analysis.

Even though the economy rebounded to grow at a 33.4% annualized rate in the third quarter of 2020 – by far the largest quarterly increase on record – it wasn’t enough to recover the losses from the previous two quarters. As a result, real GDP fell 3.5% in 2020 – the largest annual decline in the post-World War II era.

Looking ahead, the economy is projected to expand at a steady pace in 2021. The National Restaurant Association expects real GDP to grow at annualized rates of at least 4% during each quarter of 2021 – the first such occurrence during a calendar year since 1992. By the third quarter of 2021, GDP is projected to surpass its pre-pandemic levels. 

Overall, the projected 4.8% increase in 2021 would represent the strongest annual real GDP growth since 1999 (also 4.8%).

Employment will not return to pre-pandemic levels until 2022

The national economy lost more than 22 million jobs in March and April, according to data from the Bureau of Labor Statistics (BLS). That was nearly as many as the total number of jobs that were added during the previous 10 years.

While more than 12 million jobs were added back to payrolls during the last 8 months of 2020, the economy still finished the year nearly 10 million jobs below pre-pandemic levels.

On an average annual basis in 2020, total U.S. employment plunged 5.8% from 2019 levels. That represented the largest annual employment loss on record, dating back to the beginning of the BLS data series in 1939. The second largest annual decline was during the financial crisis in 2009, when payrolls shrunk by 4.3%. 

The labor market will continue to recover over the course of 2021, with job growth picking up speed as the availability and distribution of the vaccine becomes more widespread. The National Restaurant Association expects the national economy to add a net 5.2 million jobs between December 2020 and December 2021, with 70% of those gains coming in the second half of the year.

Even with that robust growth – the addition of 5.2 million jobs would represent the largest calendar-year increase on record – it would still leave the economy more than 4.6 million jobs below the pre-pandemic employment peak in February 2020. As a result, a complete return to pre-pandemic employment levels isn’t expected until 2022.

Personal income will continue to be supported by fiscal stimulus

Disposable personal income is a key driver of restaurant sales, as many consumers make meal decisions based on their available cash on hand. Fiscal stimulus provided significant support to personal income in 2020, and this will likely continue in 2021.

Real disposable personal income increased at a 48.6% annualized rate between the first and second quarters of 2020, as the CARES Act contained both direct payments to households and enhanced unemployment benefits for the millions of people that were laid off or furloughed in the initial months of the pandemic. As a result, real disposable personal income rose more than 6% in 2020, even as the economy finished the year nearly 10 million jobs below pre-pandemic levels.

In addition to the $600 direct payments that were included in the economic relief package that was passed in December, this forecast assumes that additional income-supporting stimulus will be deployed in the near future. This is expected to translate to a 2.8% increase over 2020’s elevated income levels, which will likely be a catalyst for stronger consumer spending in 2021.

Read more analysis and commentary from the Association's chief economist Bruce Grindy.