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Topline

The U.S. economy is improving more quickly than expected from the ongoing coronavirus crisis, putting it on track to reach pre-pandemic growth levels by the middle of the year, but it will still take several years for the labor market to return to normal, the Congressional Budget Office said Monday.

Key Facts

The CBO predicts that gross domestic product will grow 3.7% in the fourth quarter of 2021 (over the fourth quarter in 2019) and another 2.4% in the fourth quarter of 2022. 

The pandemic-related provisions of the $2.3 trillion budget bill enacted in December will boost the economy an average of 1.5% in 2021 and 2022, but the huge spending bill will also add $774 billion to the federal deficit in 2021 and $98 billion to the deficit in 2022, the CBO said.

The agency also expects unemployment to fall to 5.3% by the end of the year (down from 6.8% in December), but noted that employment won’t reach pre-pandemic levels until 2024.

The economy as a whole won’t reach its full potential until early 2025, the CBO added.

Crucial Quote

“CBO currently projects a stronger economy than it did in July 2020, in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected,” the agency said in its Monday report.

What To Watch For

Whether the new numbers will have an impact on the ongoing stimulus debate in Washington. The CBO’s projections are based on legislation that has already passed but do not account for any future rescue bills may emerge in the coming weeks, potentially opening the door for the argument that the economy does not need as much support as previously thought since the recovery has already surpassed expectations. 

Key Background

President Biden, who has for weeks championed an aggressive $1.9 trillion stimulus plan, will meet on Monday with a group of ten Senate Republicans about a $618 billion stimulus proposal they developed as an alternative to Biden’s plan, which they say is too expensive. “At a time of unprecedented deficits and debt … we need to be sure that this is targeted,” Sen. Rob Portman (R-Ohio) told CNN Sunday. At the same time, Democrats are preparing to use a special process to pass elements of Biden’s sweeping proposal with any Republican support.

Further Reading

An Overview of the Economic Outlook: 2021 to 2031 (Congressional Budget Office)

GDP Rose 4% In The Fourth Quarter As The Economy Struggled To Creep Back From The Brink (Forbes)

China Passes U.S. As No. 1 Destination For Foreign Investment As Coronavirus Upends Global Economy (Forbes)

GOP Senators Offer Alternative Stimulus Plan As Democrats Prepare To Pass $1.9 Trillion Rescue Bill Without Them (Forbes)