January US GDP forecast update

The $900 billion stimulus package will lift incomes by nearly $2 trillion (annual rate) in the first quarter, but that support will dwindle quickly as the year progresses. We estimate the stimulus package will boost Q1 GDP growth by 4.5 percentage points and raise the level of GDP in 2021 by 1.3%. Early-year fiscal support will provide a bridge to the second half of the year, when we expect a successful COVID-19 inoculation campaign to unlock pent-up consumer spending that will push GDP growth above 5%.

This month, the worsening COVID-19 pandemic suggested a downward revision to our forecast of GDP growth in 2021, while the passage of a significant stimulus package suggested an upward revision. On balance, and given the timing of the two developments, our projection of GDP growth in 2021 measured year-over-year has been revised down, from 4.3% to 4.0%, but as measured 4th quarter-to-4th quarter, the forecast has been revised up from 3.5% to 4.0%.