Recovery on the horizon

Features - 2021 // STATE OF THE INDUSTRY // Economy

The economic outlook for 2022 is promising with productivity growth and GDP expected to remain above pre-pandemic levels.

September 8, 2021

© Leszek Glasner | Adobe Stock

In July, the Congressional Budget Office revised its outlook from earlier in the year, projecting stronger economic growth for the next decade.

“As the pandemic eases and demand for consumer services surges, real (inflation-adjusted) gross domestic product (GDP) is projected to increase by 7.4% and surpass its potential (maximum sustainable) level by the end of 2021,” according to the CBO’s budget and economic outlook for 2021-2031. “The annual growth of real GDP averages 2.8% during the five-year period from 2021 to 2025, exceeding the 2% growth rate of real potential GDP. Over the 2026–2031 period, real GDP growth averages 1.6%, which is less than its long-term historical average, primarily because the labor force is expected to grow more slowly than it has in the past.”

The CBO reports that employment “surpasses its pre-pandemic level in mid-2022” and the unemployment rate declines through 2022 “and then remains near or below 4% for several years.”

The CBO’s projections for stronger economic growth are due a few factors including: the office expects “recently enacted fiscal policies to boost output;” and the CBO has “raised its estimate of the consumer spending that results from the additional savings that households accumulated during the pandemic. As a result, the agency’s projections of inflation are also higher than the projections made in February, as output now exceeds its potential level sooner and by a larger amount that previously anticipated, reflecting the more positive outlook for economic growth.”

A recent Deloitte U.S. forecast anticipates the economy in 2022 will outperform its pre-pandemic assumption. In a second quarter U.S. economic forecast report, Dr. Daniel Bachman writes, “It’s beginning to look as though we’ve not only avoided the “scarring” that many economists feared at the beginning of the pandemic—we’ve also accelerated technological change, meaning that productivity growth, and GDP, are likely to remain above pre-pandemic levels.”

Bachman is a senior manager for U.S. macroeconomics at Deloitte Services LP.

He says the economy is poised for strong growth in part because “business finances are healthy,” and households have significantly more savings and “consumers in aggregate didn’t take on more debt.”

Deloitte expects business spending to be “reasonably strong,” but investments “in structures – especially office and retail buildings – is likely to lag.” [Editor’s note: This will have an impact on landscape contractors who specialize in commercial jobs.]

In 2020, “households saved about $1.6 trillion more than we forecasted before the pandemic,” Bachman reports. “How much of that will they spend as the pandemic impact wanes?” The answer to that question isn’t quite clear, as he gives two scenarios. Either the consumer “remains cautious” and holds on to those savings or they go on a “spending frenzy,” potentially creating a negative savings rate, he says.

“The baseline Deloitte forecast assumes a modest decline in the savings rate below its long-term level, and that’s enough to support very strong growth in consumer spending this year,” he writes.

Housing outlook

A Zillow Research report from May 2021 predicts “today’s housing market won’t turn into 2008’s.”

The Zillow Research team backs up that claim by saying “housing supply is extremely tight — arguably the one factor most dramatically different today from the 2008-era market, when a wave of foreclosures following years of robust homebuilding pushed supply well ahead of demand and led prices to collapse.”

Zillow expects demand will stay strong “as the large millennial generation continues to age into homeownership, and more inventory is expected to soon hit the market — bringing more balance to the market and creating a smoother experience for everyone.”

Expanding on the demographic shift, Zillow notes it’s been steadily unfolding for the past several years.

“The massive millennial generation — some 72 million strong in 2019 — the oldest of whom are approaching their 40s, is aging into their prime career-building, family-starting and home-buying years. The median age of first-time home buyers is generally in the early-mid thirties, and there are tens of millions of Americans at or approaching that threshold.

“The combined numbers of millennials turning 34 over the next decade — the median age of first-time home buyers in 2019 — is roughly 46 million, the largest such number expected to reach that age in a single decade. The previous record prior to the millennial generation was in 1989, when there were about 43 million 25- to 34-year-old boomers. And as millennials age, there are millions more of their younger peers in Gen Z behind them waiting in the wings. It adds up to millions of potential new buyers in years to come — representing ‘built-in’ demand that is extremely unlikely to fade even if market conditions change in coming years.”

Zillow also expects historically low mortgage rates will help “stretch buyers’ budgets by keeping monthly payments relatively affordable.”

When it comes to supply, Zillow notes, “the glaring lack of homes available to buy relative to robust demand is probably the most visible (or invisible) trend defining the housing market in 2021. This mismatch between limited supply and sky-high demand is the single-largest factor driving home values up at a record pace, and the time homes spend on the market before selling to record lows. It is also arguably the one factor most dramatically different from the 2008-era market, when a wave of foreclosures following years of robust homebuilding pushed supply well ahead of demand and led prices to collapse.”

Deloitte’s Bachman has a different viewpoint of housing demand and interest rates.

“Homebuilder confidence has remained above pre-COVID-19 levels but has moderated from its peak at the end of 2020,” he writes, and Deloitte expects “demand to cool due to reduced affordability.

Bachman says interest rates are “set to rise in the forecast as the recovery gathers speed. Despite the slowdown, demand is likely to exceed supply as builders continue to grapple with rising lumber prices and land-use restrictions. Home prices are therefore likely to rise further through the forecast period.”

Sources and full reports: Congressional Budget Office (; Deloitte Services (; Zillow Research (