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Herd Immunity will Propel Economic Recovery, as will Infrastructure Bill, PCA Says

June 26, 2021
Economist Sullivan predicted that herd immunity would result in a dramatic surge in consumer confidence, encouraging a return to many, but not all, pre-Covid activities.
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The second quarter of 2020 brought a real GDP decline of 31 percent, the largest decline in GDP since 1946 when the economy was transitioning from a war-time economy to a peace-time economy, said Portland Cement Association executive vice president and chief economist Ed Sullivan during a presentation at the World of Concrete in Las Vegas earlier this month. Since the second quarter, the economy has been mired in state shutdowns, re-openings and further shutdowns as COVID-19 has retreated and increased.

Overall, 2020 GDP declined 3.5 percent. Nearly 9.5 million jobs have been lost, equating to nearly 1 million more jobs lost during the great recession. More than 20.6 million jobs were lost in one month. Since the third quarter of 2020, economic growth has exceeded 5 percent. So, impressive monthly gains in the third and fourth quarter must be put into this context, Sullivan said.

As of the first week of June 2021, 43 percent of the U.S. population was fully vaccinated and 63 percent of its adult population were vaccinated, with 16 to 25 percent refusing vaccination. The PCA predicted 75 percent herd immunity by mid-summer.

Sullivan predicted that herd immunity would result in a dramatic surge in consumer confidence, encouraging a return to many, but not all, pre-Covid activities such as dining, movies, shopping and face-to-face interactions. Businesses will reopen, and new businesses will likely emerge to fill voids created by the virus, possibly encouraged by Small Business Association support. While it may take several quarters, investment uncertainty will decline, the economy will expand rapidly, and job growth will be strong. “The process begins with consumers sense of safety and the achievement of herd immunity,” Sullivan said.

Overall employment is roughly 8 million jobs lower than pre-Covid levels, Sullivan said, because millions have left the workforce. This blurs the unemployment rate. Without the reduction in the workforce, unemployment would be measured at near 9 percent.

In 2021, there will be 4.5 million net new jobs, PCA predicts, with another 3.5 million created in 2022. Still, even with continued robust job creation, pre-Covid employment levels will not be reached until 2023.

With continued progress in vaccinations re-openings, growing consumer confidence and sustained strength in job gains, return to pre-Covid levels of normalcy is expected early in the third quarter. Real GDP should increase 6.2 percent in 2021, and 4.5 percent in 2022, with a 5.2 unemployment rate in 2021 and 4.8 percent in 2022. The unemployment rate estimates include a significant expansion of the labor force, muting the decline in the unemployment rate.

While the economy is returning to normal, shortages and supply chain issues characterize the nation’s ability to meet strengthening demand, impacting everything from computer chips to lumber to restaurant services. There are four main reasons:

·      Strong demand.

·      Production cutbacks and delayed maintenance during Covid.

·      Weather conditions that led to a disruption of production.

·      Logistic hinderances on the roads, waterways and rails.

There is also the possibility that Covid relief programs and amped up unemployment benefits will delay the return of some workers.

The inflation rate is expected to be about 2 percent in 2021 but could increase above the Federal Reserve’s target rate in 2022 and 2023. There are various possible reasons. In 2022 and 2023, with much of the pandemic having passed, pent-up demand will be released, unemployment could decline below 5 percent and a phase in of minimum wage limits could have an impact on inflation. Capacity slack could be reduced, and inflationary expectations could rise more aggressively, causing the Federal Reserve to become modestly restrictive. The U.S. dollar could strengthen, and inflation could increase an estimated 50 to 100 basis points.

While mortgage interest rates on conventional 30-year mortgages have dropped considerably, the possibility of an increase to higher than 5 percent by 2025 will impact residential construction and cement consumption. Monthly payment average annual increases on single-family homes have been around 1.9 percent from 2005 to 2019, 2.3 percent through the second quarter of 2022, but from the third quarter of 2022 through 2024 could reach 11.6 percent, PCA says. However, PCA’s analysis suggests that because of to tight housing supplies, little adverse impact will be suffered by either single or multi-family construction.

      While the impact of a federal infrastructure bill is still up in the air, this past week PCA applauded the agreement towards a bipartisan infrastructure package agreed upon by President Biden and 21 senators. PCA senior vice president of government affairs Sean O’Neill released the following statement regarding an agreement toward a bipartisan infrastructure package:      

     "PCA, representing America’s cement manufacturers, applauds the White House and the bipartisan group of 21 senators for reaching a deal on a $953 billion infrastructure package. America's economic vitality depends on an integrated, national transportation network that moves goods and people safely and efficiently, while ensuring quality of life and economic prosperity for all citizens.      

     “PCA has continually advocated for passage of a long-term bipartisan infrastructure package and is encouraged that this plan takes the vital steps needed to provide significant investment in our nation’s infrastructure. PCA encourages both parties in Congress to work towards enacting strong bipartisan infrastructure legislation as outlined in the agreement between the White House and the group of bipartisan Senators.”