On Thursday, BofA economists lifted their 2021 US growth forecast once again on hopes for past and future stimulus accelerating the economic recovery. The upgrade is at least the fourth the bank has made this year.
The team led by Michelle Meyer now expects gross domestic product to grow 7% this year, up from the previous estimate of 6.5%. Output will then reach 5.5% the following year, also an upgrade.
Growth on a fourth-quarter-by-fourth-quarter basis will total 7.7% in 2021 and 4.4% in 2022, the team added. That exceeds the Federal Reserve’s median estimates of 6.2% and 3.4% growth in 2021 and 2022, respectively.
The upward revision is entirely linked to stimulus. The $1.9 trillion measure passed by Democrats earlier this month is already fueling “exceptional consumer spending” according to credit- and debit-card spending data tracked by the bank. Distribution of $1,400 direct payments contributed to a 40% month-over-month spending leap among recipients. The boost might only just be getting started, the economists said in a note to clients.
Total card spending was up a whopping 45% from a year ago and 23% from two years ago for the seven days ending March 20, per BofA data.
“We think consumer spending is about to take off given the one-two punch of stimulus and reopening,” they added.
Hopes for a follow-up spending package added to the bank’s rosier forecast. The White House is organizing a proposal for up to $3 trillion in spending on infrastructure, climate, and education projects to further aid the country’s rebound. Such a plan would drive a more moderate boost to growth over a longer period of time, the bank said.
Tax hikes used to pay for a follow-up spending package could offset some gains, the team added.
Stronger 2021 growth should open the door for a swifter labor market recovery, according to the bank. The team expects a series of encouraging jobs reports starting with the March release scheduled for April 2. Payroll growth is projected to average 950,000 per month in the second quarter and pull the unemployment rate to 4.7% from 6.1%.
The rate will fall more modestly through the rest of the year to 4.5%, the team said. That matches the Fed’s own year-end estimate.
Bank of America’s bullish update follows similarly optimistic forecasts from Wall Street peers. Recent weeks have seen Morgan Stanley, UBS, and Goldman Sachs all lift their own estimates for 2021 GDP growth.
Morgan Stanley remains the most bullish of the bunch, estimating the economy will expand 8.1% this year and return to pre-pandemic output levels by the end of the first quarter. All three banks, along with Bank of America, hold decidedly more hopeful outlooks than the Fed due to expectations for another large-scale spending measure.