Full employment to return next year, ABA forecast says

Robust growth in a recovering U.S. economy should lead to unemployment returning to normal levels in 2022, according to the latest forecast from the American Bankers Association’s Economic Advisory Committee.

The committee predicted inflation-adjusted growth of 7.2 percent this year,  slowing to 3.1 percent in 2022. Both household and business spending would reach 8 percent growth in 2021 before moderating to 3 percent and 5 percent, respectively, next year, the committee said.

“Since the committee met in January, further federal stimulus and a tremendously successful vaccine rollout are fueling the fastest economic recovery in 75 years,” said Beata Caranci, senior vice president and chief economist at TD Bank Group and current EAC chair. “There is a high degree of confidence within the committee that a vigorous expansion will continue to unfold as consumers unleash pent-up demand in the months ahead.”

The bank economists expect more than 550,000 average monthly new jobs this year to bring the unemployment rate down from 6.1 percent at present to 5.0 percent at year end. In 2022, the group expects unemployment to reach what it sees as full employment at 4.0 percent, averaging almost 300,000 monthly job gains.

While Caranci acknowledged the possibility that the additional $300 in Federal unemployment assistance could be contributing to current unemployment levels, she stressed that it was not the only factor. Women, who have overwhelmingly taken on childcare responsibilities during remote work and schooling, have been exiting the workforce in droves; this could normalize after the summer as in-person school resumes, Caranci said. Minorities and other disadvantaged groups have also disproportionately exited the workforce. Additionally, those who took early retirement at the height of the pandemic might not return

It would be “difficult to disentangle” these factors, she said.

Temporary supply-side constraints coupled with strong demand will keep inflation elevated at the end of the year, the committee said. That number would likely be 3.5 percent as measured by the Consumer Price Index and 2.6 percent as per the core Personal Consumption Expenditures measure preferred by the Federal Reserve. This isn’t a lasting concern, the committee said, and it views risks as largely on the upside. It forecasts sustained price gains above 2 percent even as supply constraints ease into 2022. It could take six months or longer for the supply side to even out, Caranci said. 

“Inflation will not be below the long-run average in this business cycle,” Caranci said. “We believe the Federal Reserve will succeed in achieving sustained inflation in excess of 2% under its Average Inflation Target objective. The Fed should begin tapering its nearly $8 trillion portfolio no later than the first quarter of next year.”

Other members of the 2021 ABA Economic Forecast committee are:

  • Scott Anderson, executive vice president and chief economist, Bank of the West/BNP Paribas, San Francisco
  • Scott J. Brown, senior vice president and chief economist, Raymond James Financial, St. Petersburg, Fla.
  • Richard DeKaser,  and chief corporate economist, Wells Fargo & Co., Washington
  • Robert Dye, senior vice president and chief economist, Comerica Bank, Dallas
  • Augustine Faucher, senior vice president and chief economist, PNC Financial Services Group, Pittsburgh
  • Ethan Harris, managing director and head of global economics, Bank of America Securities, New York
  • Peter Hooper, managing director and global head of economics, Deutsche Bank Securities Inc., New York
  • Nathaniel Karp, executive vice president and chief economist, BBVA USA, Inc., The Woodlands, Texas
  • Bruce Kasman, managing director and chief economist, JPMorgan Chase & Co., New York
  • Christopher Low, chief economist, First Horizon National Corp’s FTN Financial, New York
  • Simona Mocuta, managing director and senior economist, State Street Global Advisors, Boston
  • George Mokrzan, director of economics, Huntington Bancshares, Inc., Columbus, Ohio
  • Richard Moody, senior vice president and chief economist, Regions Bank, Birmingham, Ala.
  • Doug Porter, managing director and chief economist, BMO Financial Group, Toronto
  • Carl Tannenbaum, executive vice president and chief economist, The Northern Trust Company, Chicago
  • Ellen Zentner, managing director and chief U.S economist, Morgan Stanley, New York