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INVESTMENT STRATEGY QUARTERLY

2021 Economic Outlook: A Return to Normal?

Scott J. Brown, PhD, Chief Economist, Raymond James

Pandemics have often played a significant role in world
history – 2020 added another chapter. In past episodes,
including the 1918 influenza outbreak, government officials The worst of the pandemic was met by the best
fought over wearing masks and public health guidelines. in monetary and fiscal policy.
Some things never change.

IMPACT OF COVID-19 activity. Conversely, opening up the economy allows the virus to
spread more widely. The harsh lockdowns in April and May were
The COVID-19 pandemic had mixed effects on households. Job
losses were more concentrated in low-wage service industries. critical in preventing hospital overload, allowing time to increase
About 40% of those in the bottom 20% of income earners lost jobs hospital capacity, to distribute personal protection equipment,
in April and May. White collar workers were more easily able to work and to develop treatments. As restrictions were eased, infections
from home and experienced a more V-shaped recovery in jobs. increased in the summer months, but mostly for young (healthier)
Consumer spending fell sharply amid the spring lockdowns, but adults. The third wave has hit those aged 60 and above (those
self-imposed isolation (on health concerns) appears to have had a more susceptible). This surge has led state and local governments
greater impact. Most of the hit was to consumer services, including to reimpose restrictions on in-person services, which will dampen
leisure and hospitality, tourism, spectator events, and restaurants. the pace of economic improvement in early 2021.
With a limited ability to spend on these services, spending on durable Luckily, vaccines are on the way. The effectiveness of potential vac-
goods rose above pre-pandemic levels. However, while spending on cines was very good in early trials. Their distribution should lead
consumer services picked up off the April lows, activity remained to better improvement in the economy in the second half of the
depressed into the fourth quarter. year. However, many people may not accept a vaccine. Others may
be reluctant to resume social contact even after being vaccinated.
There is a trade-off between economic activity and efforts to con-
tain the virus. Locking things down to prevent the spread reduces However, savings of mid- and upper-income households increased

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