The emphasis on remote work and engagement has meant that people are spending their time and their money in dramatically different ways than before. They are far more likely to be conducting meetings remotely, traveling less, buying goods online and having their purchases of goods delivered. This acceleration in the rate of technology and technology-enabled disruption is changing the competitive landscape in a wide range of industries. Some of these changes may reverse after we have weathered this pandemic, while others are likely to be more lasting. In the months and years leading up to the pandemic, I spoke regularly about some of the key structural challenges facing the U. S. economy (see the essay “Economic Conditions and the Key Structural Drivers Impacting the Economic Outlook, ” Oct. 10, 2019).
Sluggish productivity growth has also created headwinds to economic growth. These investments will particularly help to improve the future adaptability and employability of those with lower levels of educational attainment. It is our view that this MEI measure is an excellent proxy for the direct impact of the pandemic on economic activity and highlights trends in the economy. Dallas Fed economists believe that the MEI is highly correlated with the path of the virus, especially when cases are rising. This index highlights the importance of limiting the spread of the virus while maintaining or improving the level of mobility.
Sluggish workforce growth due to aging of the population has created a headwind for GDP growth. Finding ways to improve workforce growth is likely to be critical to improving GDP growth in the U. S.
We expect that 2020 GDP will show a contraction of approximately 3. 0 percent and that the unemployment rate will end the year at approximately 7. 5 percent. Inflation, as measured by core personal consumption expenditures, is expected to be running at approximately 1. 6 percent by year-end 2020. We forecast that the U. S. economy will grow by roughly 3. 5 percent in 2021 and that the unemployment rate will decline to approximately 5. 7 percent by year-end 2021. Inflation is expected to modestly accelerate, increasing to approximately 1. 8 percent by year-end 2021. These forecasts are, of course, highly uncertain because they are heavily dependent on the path of the virus and the level of adherence to public health protocols, such as mask wearing and social distancing. They also depend heavily on continued fiscal support, as well as the timing of a potential vaccine that is effective and can be widely administered. However, due to a resurgence of the virus in certain states beginning in June, the rate of growth slowed somewhat in July and August.
Our effectiveness in managing this virus will continue to be a primary determinant of economic growth in the U. S. How well do we follow health protocols of social distancing and mask wearing? These questions will help determine how quickly we return to higher levels of engagement and, as a consequence, how fast we recover from this pandemic. Dallas Fed economists expect continued growth through the rest of this year.
Through the reimposition of targeted business closures and the heightened emphasis on adherence to public health protocols of social distancing and mask wearing, the rate of transmission of the virus began to moderate in August and September. Even with these reopening challenges, our economy has recovered faster compared to expected, and Dallas Given economists forecast that third-quarter gross domestic product development in the U. H. is going to be approximately 30 % at an annualized price.