In the US, prospects for the year are improving. Economists believe the economy is on the edge of a major boom that could last into 2023. A period of supercharged growth is beginning. Expansion is manifest in surging consumer spending and increasing demand for skilled workers.
Jamie Dimon CEO of JP Morgan believes the boom could last well into 2023. "All the spending [from government and households] could extend well into 2023". The IMF has upgraded forecasts for the US economy to almost 6.5% this year. The Federal Reserve is forecasting growth of 6.5% slowing to 3.3% in the following year.
So what of the UK?
The IMF has upgraded forecasts to 5.3% this year and 5.1% next. Our own forecasts assume growth of 6% this year and 5.2% in 2022. Consumer spending is expected to surge as the route out of lock down is secured. Households have amassed significant savings, most of which will be remain on deposit or passed into pensions, housing and financial markets. Oh yes and some may even creep into crypto.
Our forecasts are for consumer spending to increase by 7.9% this year and by 7.4% in 2022. The sector analysis is listed below. Restaurants, hotels, domestic tourism and clothing are expected to be the major beneficiaries.
The latest IHS Markit/CIPS surveys confirmed the strength of recovery in manufacturing, services and construction. The manufacturing index moved to an all time high. Output, order books and employment all gathered momentum. Optimism about the year ahead improved further.
The recovery in construction output gained considerable momentum in March with a big rise in house building and commercial work. The output index increased to the highest levels since 2014. The services sector recorded a strong rebound in business activity. New orders and employment were up in the month. The service sector index rose to 56.3 in March. Manufacturing closed at 58.9, construction hit 61.7.
Car sales were up in March, house prices moved to an all time high according to the Halifax Building Society. High street stores are expected to bounce back as stores reopen. Hiring activity picked up at the fastest pace in almost six years as companies prepared for the end of lock down according to the latest KPMG/REC survey.
We expect the furlough numbers to fall significantly in this quarter, down from the 4.7 million in February towards the 2.5 million level experienced in September last year. As with the US, the UK will experience a surge in growth which could well last into 2023.
The surge in nominal growth could be over 20% over the three year period, providing a substantial platform for jobs and business in the medium term. Soon it will be time to worry about what happens next after the what happens next but not just yet.
The inflation hawks are circling, the bond vigilantes stand watch. For the moment, as we said last week, get ready for the post pandemic boom ... cheers to recovery ... long may it last ...
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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