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8 2 adopted and/or herd immunity is attained; followed by a period of steady, sustainable, above-average economic growth. The "bounce" phase is over. The US economy is now in the "choppy" phase of the recovery. It will be a slog. There will be many powerful crosscurrents and perhaps some stops and re-starts. The Terry College does not expect another round of widespread lockdowns of the population or shut-downs of businesses. The US economy therefore is unlikely to slide back into another deep recession. Nonetheless, economic growth will not gain traction until an effective vaccine (or other medical solution) to the virus is widely available and adopted, which we assume will occur in mid- 2021. If the Terry College's assumption that an effective vaccine is widely adopted by mid-2021, then US GDP will increase by 3.5 percent in 2021, which compares favorably to the 4.2 percent decline estimated for 2020. Since the decline in US GDP that occurred in 2020 was large – a peak-to-trough contraction of 10 percent – and the projected rate of 2021 GDP growth is modest (3.5 percent), GDP will not surpass its' previous peak until early 2022. Similarly, labor market conditions will improve in 2021, but the number of jobs will grow more slowly than GDP. On an annual average basis, total nonfarm employment will expand by 0.9 percent in 2021. That gain compares well to the 6 percent decline estimated for 2020, but the labor market will not recover the 22.2 million job lost to the COVID-19 recession until 2024. Only then can the US economy be considered healed, but it will be a very different economy. The "Bounce" Late in the second quarter, many state's eased restrictions on businesses' operations and on people's movement. Despite contagion fears and social distancing, people emerged from the spring lockdowns. Many businesses re- opened – fully or partially. Pent-up demand was released. There was a sharp rebound in consumer spending. Retail sales quickly recovered and spending on both durable and nondurable goods quickly surpassed pre-pandemic levels. Retailers, home sellers, and providers of services that could not be postponed any longer benefited the most. That initial rush to spend represents a rebound from extreme shocks and massive economic stimulus rather than economic reality. Nonetheless, economic activity surged. On an annualized basis third quarter GDP increased by 27 percent. The third quarter "bounce" returned US GDP to 95 percent of its pre-pandemic level, up from only 90 percent of its pre- pandemic level in the second quarter. The surge in economic activity as measured by GDP was extremely uneven and many types of businesses did not benefit very much. For example, consumers strongly shifted their spending from services to goods. The labor market also rebounded. In the initial three month rebound – May through July, the number of jobs rose by 7.1 percent, reversing 42 percent of the peak-to-trough drop in employment. The "Slog" In final quarter of 2020, the US economic recovery slowed sharply. The economic realities of permanent job and income losses set in. Many of the fiscal stimulus programs passed in the early months of the pandemic were winding down. Politicians found it difficult to agree on an additional large stimulus package. Anxiety about skipped payments to landlords and lenders increased. Forbearance policies were expiring, or were set to expire in 2021. Meanwhile, the COVID-19 pandemic continued. Some states saw a re-intensification of the virus. Although consumer confidence was higher than during the lockdown period, it was stuck at levels fundamentally inconsistent with solid growth in consumer spending. Personal and business bankruptcies began to rise and many more were expected in the not too distant future. And, the COVID-19 pandemic continued. Official lockdowns were over, but many, even among those who are not members of vulnerable populations, continued to self-isolate. Almost everyone practiced social distancing, which limits the spread of the virus, but also restrains the economic recovery, especially for providers of high-contact services. The Terry College estimates that the annualized rate of GDP growth dropped from 27 percent in the third quarter of 2020 to about 3 percent in the fourth quarter. In 2021, a balance of positive forces over negative forces should sustain the US economy recovery, but it will continue to be a slog. V-shaped recoveries for retailers and housing are the biggest positives, but are also the biggest exceptions. The recovery will not be V-shaped recovery for most types of business. It will help that households have saved a lot and will spend some of their savings. That should sustain consumer spending, which is vital to the recovery. The Federal Reserve will do "whatever it takes" to support the struggling US economy, including keeping policy interest rates at zero into 2023. It is very good that COVID-19 dramatically accelerated the adoption of digital technology and remote work in a wide range of industries. Capital spending, innovation, and productivity will benefit from the increasing digitization of the US economy. Digitization and the move towards remote work will support increased spending for high-tech equipment in 2021 and beyond. Indeed, capital goods orders will fare better in the wake of the COVID-19 recession than in the wake of the Great Recession. Meanwhile, depleted inventories and firmer orders will shore up industrial production, albeit from depressed levels. A weaker dollar will make US exports less

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