We expect the rising threat of COVID-19 to dampen growth in 1H 2021 (specifically Q1 2021), but the level of economic activity created by momentum stemming from Q4 2020 is enough to sustain the US economy during this time, and lift our GDP growth forecast to 3.10% for the year. Further, any additional fiscal support to provide additional income to households, or encourage more ambitious projects such as infrastructure spending, will all help to provide an additional uplift to the US economy during this time.
The current pace of the recovery is also increasing labour force participation, where increased economic output is increasing demand for labour, and in turn, prompting new entrants to join the labour market at a fast pace. If this can continue throughout the year, we see the unemployment rate falling from 6.70% in Q4 2020 to 3.9% in Q4 2021, which would provide a sizeable tailwind in labour income growth in the quarters to come. Following a rough Q1 2021, growth in labour income, and wide spread inoculation of the COVID-19 vaccine to the general public, will help consumer spending on (in-person) services catch up to goods spending, which has already surpassed its pre-COVID-19 level in Q2 2020. Further, developments in the US housing market, such as historically low mortgage rates, the continued migration from cities to the suburbs, and the upgrading and re-modelling of existing homes, have all kept the US housing market strong during the crisis. Given the current economic environment, we expect this will continue to fuel
home-related spending for the remainder of the year.