U-M economists share 5 things to watch—and watch out for—in new year, with new president

January 21, 2021
Contact: Jeff Karoub jkaroub@umich.edu

Business man drawing new year 2021 charts graphs business success strategy plan ideas concept. Image credit: iStockFor many, 2021 represents some rays of hope: hope that a widely distributed vaccine will allow for some semblance of normalcy and economic recovery, and a new presidential administration will enhance financial support for workers, their workplaces and the communities in which they live.

Researchers with the University of Michigan’s Research Seminar in Quantitative Economics, who have been forecasting and modeling in their field for nearly 70 years, are appropriately looking ahead and see some signs for optimism. But they also know that no recovery comes without obstacles or unintended consequences. Additionally, new presidential administrations bring changes in policy and politics, and those typically come with an adjustment period.

“The pandemic quickly made most predictions made early in 2020 irrelevant,” said economic forecaster Daniil Manaenkov. “With the ongoing vaccine roll-out, the end of the pandemic is in sight, letting us focus on how the post-pandemic economy might look like.”

In recognition of all that, U-M experts offer “five things to watch” and “five things to watch out for” in the U.S. economy in 2021.

Five things to watch for:

  1. Getting the vaccines out quickly is the most important economic/social task. Under the incoming administration, expect a federally coordinated push and vaccination sites to pop up everywhere over the next few months, including in schools, public libraries and chain stores.
  2. Longer and more generous support for families and businesses. The $300-per-week boost to unemployment compensation is likely to be extended or, possibly, increased. Look for another stimulus check in the spring. On the small-business side, some form of job-creation incentive or tax credit is likely.
  3. Reopening schools is President Joe Biden’s top priority. So if all goes well on the vaccination front, most schools could return to in-person learning by spring, which should help many parents return to their pre-pandemic work schedules.
  4. Those who were working remotely will see their work colleagues in person, but maybe not everyone at once, and only a few days per week. We think offices are likely to broadly reopen by summer, but many workplaces are likely to keep the work-from-home option open for quite some time.
  5. Look for a pivot in national policy discussions to healthcare and climate policy.

Five things to watch out for:

  1. As a result of the ongoing pandemic hitting small businesses much harder, several sectors may enter the post-pandemic period with more concentrated market power, leading to higher prices. One place this trend could show up is in pricier food at the grocery store and restaurants this summer.
  2. Look around for some new favorite restaurants, burger joints, gyms and other shops. Many of your old favorites may have already folded and are not coming back.
  3. Popular vacation destinations may get crowded this summer, especially the outdoor ones.
  4. As the economy rotates toward the old normal, some people who have found new employment in the sectors that benefited from the pandemic may have to look for new jobs again.
  5. Since May 2020, the foreign exchange value of the dollar measured against a basket of currencies is down about 10%. This could make foreign travel and some of our favorite imported tech toys more expensive.

 

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