Morgan Stanley economists boosted their outlook for next year in response to the likelihood of Congress passing President Joe Biden’s infrastructure proposal, Insider reports.
The bank’s economists expect the package to pass by the fourth quarter of this year, well beyond the Democrats’ soft July 4 deadline, despite Republican opposition and centrist proposals that would change the scope of the package.
Citing the likelihood of passage, Morgan Stanley boosted its growth projection by 0.4% in its 2022 forecast, bringing it to 3.2% over the fourth quarter of 2021.
The bank projects that the US economy will grow by about 8% this year.
Jobs, spending to rise:
Despite a disappointing April jobs report and lower retail spending, Morgan Stanley said in a note to clients that it expects both job growth and spending to rebound over the summer.
The bank estimates that US households are holding about $2.2 trillion in additional savings as a result of federal stimulus and a year of lockdown restrictions.
The economists project that the unemployment rate, which currently stands at just over 6%, will fall to 5% by the end of 2021 and to 3.9% by the end of 2022.
"Above-trend economic growth, vaccination progress, a relaxation of public health restrictions on activity, and a reduction in unemployment benefits drive our expectation that the labor market recovery will come back more strongly later this summer and into next year," the economists said.
While the report painted a rosy picture of the economic recovery, the economists also expressed concerns about inflation.
The note said that supply bottlenecks and shortages have contributed to higher prices and reopenings have resulted in much higher demand for businesses like hotels and airlines, causing price increases.
But while these early concerns are likely to be alleviated, the economists warned of "more persistent inflationary pressures percolating beneath the surface,” particularly among the cost of rents and home prices.