SUMMARY. After the GDP declined 3.5% last year, the worst performance in almost 75 years, the US economy is set for a strong comeback. There are many reasons to be optimistic about the economy for the next few years, including strong readings of macro-economic factors combined with the economic cycle reset backed by government initiatives and policies.
Our positive outlook is based on the reviews of key economic indicators, including GDP, unemployment, and inflation.
During H1 2021, we witnessed a strong level of activities and a rebound for many industries. As local governments eased lockdown restrictions, service-oriented industries gained traction and that translated to an overall increase of economic activities across many industries.
We expect this level of rebound to continue and we now expect even stronger overall growth for 2021. The US economy is on track to reach or even surpass the growth level of 1984 – the highest one since 1950s. In the near term, consumer spending will help drive demand and support the strong growth trend.
Many factors contribute to such upbeat projections. Strong macro-economic data provided a solid basis for future growth. Government stimulus to consumers as well as businesses combined with investments into a sustainable economy, and technology development will continue to drive demand in the near term. A future infrastructure bill will also serve as a catalyst to generate new demand and continue the economic expansion for several years.
We have mentioned the electrification trend of vehicles and equipment in the past. We expect these developments and trends to accelerate in the near future. In particular, we expect new developments in battery technology, and also with hydrogen power. The impact of this electrification will touch a majority of the applications/products that we track in our databases. We already see viable alternatives to ICE powered products entering the market during the next 12-36 months, and this trend will accelerate in the mid-term.
We continue to see a favorable fiscal policy and a stable economic situation in the US. At this time, we expect it will take at least until 2022-2023 before GDP surpasses its Q4 2019 peak. Fiscal policy with near zero interest rates, which government has promised to keep in place for the next 12 months, will provide a good platform for the economic recovery and allow us to look optimistically into 2022. We believe this is a critical factor as it re-assures both consumers and businesses of low interest rates and it helps drive demand for goods and services. Even then, once the interest rates are lifted from the flat zero levels, we believe they will still provide favorable conditions to continue economic expansion.
The key factor and the foundation to the economic recovery is strong fiscal policy. With extra cash in the hands of US consumers, combined with low interest rates, and strong growth expectations, inflation concerns have re-surfaced in H1 2021. As of June 2021, annual inflation for the 12 months ending in May was at 4.99%. In just one month the inflation rate increased by 0.83% from 4.16% as of April 2021.
Increased inflation concerns have put a break on stock market growth, especially to growth-oriented companies such as the technology sector. However, given the current macroeconomic levels, we do not expect any significant change to fiscal policy (such as interest rate increases) this year. Current conditions provide a solid outlook and reassurance for future recovery and growth at least for another 12-18 months.
We have mentioned significant improvements on the employment market during last 6-9 months, however the trend experienced a slowdown in early Spring 2021. The latest readings from June 4, 2021, showed the unemployment rate at 5.8%. While the rate improved from Q1 2021, (April 2021) at 6.2%, it is still significantly higher than the pre-pandemic rating in February 2020 of 3.5%.
The number of unemployed persons as of June 2020 was at 9.3 million vs. 10 million in March 2021 and 5.7 million in February 2020. We expect the employment market to continue to improve in the H2 2021; it may take at least another year and a favorable economic situation to fully recover employment to the rate of 3.5%-4.5%. The labor force participation rate was little changed at 61.6 %in May 2021.
Housing starts statistics experienced a slowdown in Q1 2021, however they rebounded during Q2 2021 at 1.572 million in May of 2021. The building materials market continued to experience pricing pressure as well as supply chain issues which slowed growth. We expect this trend to continue in the near future. Another factor that contributed to the slowdown was rising mortgage rates, primarily driven by a rise in Treasuries. However, given the strong outlook for the economy, we expect the housing market to remain strong, which will directly help drive growth in segments like Construction, Industrial and L&G.
Across all market segments, we expect overall total OEM equipment production numbers to rebound in 2021 from 2020 losses. Cumulatively, OEM production in the US experienced a decline of 13.1% in 2020 vs. 2019. We expect growth in 2021 of 8.0% vs 2019. This estimate is slightly lower by 0.1% than the previous estimates in Q1 2021 at 8.1%, mainly due to the slower recover pace in the Spring of 2021. The key driver of the growth in 2021 will be strong fiscal policy and accelerated growth in H2 2021. At the same time, the recovery and growth will vary considerably among segments.
As expected long before the pandemic, the Medium and Heavy Vehicles Segment was due for a slowdown and a reset. This segment in 2020 suffered the worst performance among all industry segments; however, it will also lead the recovery in 2021 and will post the highest growth rate at 30.5% vs significant loses in 2020. We continue to see significant improvements in this segment with sustainable demand over the next 18-24 months. Furthermore, we estimate an additional gain of 6% in 2022 vs 2021.
Consumer-oriented segments experienced significant market deterioration with the Passenger Car segment leading the decline at -25.1% in 2020 vs 2019. The next leading segment was Minivan/SUVs at -16.3% in 2020 vs 2019. We expect passenger car production to remain flat in North America while Minivan/SUVs to regain ground in 2021 at 10.1%.
As economic conditions improved during the last three months, we expect a rapid increase in demand for products to follow in most markets, starting in H2 2021. At this time, we forecast year 2021 growth to be in the low single digit vs 2020 at 8.0%, and we see an 9.7% additional gain in 2022 vs 2021. Overall, for all OEM equipment sectors, we expect it will be 2023 or 2024 before the total volume units produced in North America reaches pre-pandemic levels of Q4 2019.
Here are our views on several key industrial segments.
AGRICULTURAL. As the post-pandemic recovery continues, we expect the Ag segment to follow other industrial and heavy equipment industries. In 2021, we project the growth of agricultural equipment and machinery in North America to be at 9.8% vs 2020. Additional growth is projected for 2022 at 13%. The recovery will be steady, and we expect levels of production in 2022 to reach those of 2016-2017.
CONSTRUCTION EQUIPMENT. We expect the Construction machinery segment to follow strong economic recovery patterns. Our most recent overall projection on construction equipment and machinery production is positive at 8.9% in 2021 vs 2020, which is slightly higher than Q1 2021 estimates. Furthermore, we expect additional growth of 9.7% in 2022.
INDUSTRIAL. This segment typically follows the general economy, and the construction industry trends, with some minor equipment exceptions, such as forklifts. Currently, we expect an overall growth in production numbers at 9.6% in 2021 vs 2020 with additional growth of 12.4% in 2022.
The main drivers for the segment are small industrial equipment, material handling and forklift applications, where the demand remains strong. Furthermore, material handling is supported by stronger levels of freight, and we expect this trend to continue in 2021-2022.
Consumer sectors, including LAWN AND GARDEN, PASSENGER CARS, MINIVANS AND SUVs as well as RECREATIONAL PRODUCTS look very promising for the next few years. Not only have these segments entered a new cyclical uptrend, but they will also benefit from favorable fiscal policy and increased demand driven by the economy re-opening.
LAWN AND GARDEN. This segment typically follows a similar pattern to other consumer products; however, given the circumstances related to lockdown, the L&G sector performed very well in 2020 (production was flat in comparison to 2019). We estimate L&G to continue strong performance, driven by healthy demand at 6.8% in 2021 vs. 2020 with additional growth of 9.9% in 2022. During the past year, the segment has suffered supply chain issues.
During the past few quarters, we have been gathering intelligence on new electric models, and we will be completing data and releasing them to our client databases over the next few quarters. Given current market circumstances and the trend in the industry, we believe electric models will follow similar growth rates to its ICE units and will greatly gain market share at the expense of ICE-powered equipment.
PASSENGER CARS and MINIVAN/SUVS. Strong demand supported by low interest rates and a re-opening of the economy will help these segments regain ground in 2021. At the moment, we expect the segment to show healthy growth in 2021, mainly due to a low base in 2020.
However, given the current trend, specifically the market transitioning to SUVs, the production volumes of passenger cars may never fully come back to the levels of 2016-2017. We estimate production for passenger cars to be flat in 2021. Additional growth of 10.7% and 7.8% is expected in 2022 and 2023, respectively.
Over the past few years, the Minivans/SUVs segment has been enjoying growth and taking share from passenger cars. Nevertheless, the overall production has declined at 16.3% in 2020 vs 2019. We estimate the rebound in 2021 to be at 10.1% vs 2020. Steady recovery next year is estimated to continue in the following years at 10.9 and 6% in 2022 and 2023, respectively.
We have already started to witness introduction of EV technology across all major OEMs, and we expect this trend to significantly accelerate in the next 2-4 years.
POWER GENERATION. This segment will mainly follow other industrial segments and will gain 8.1% in 2021 after being almost flat in 2020 vs. 2019. The recovery will mainly depend on improved economic conditions in the region and worldwide. We expect the segment to continue to improve in 2022 at 8.9% vs. 2021. Key demand drivers for the segment come from data centers, healthcare, and infrastructure development.
RECREATIONAL VEHICLES. Recreational Products follow similar patterns to other consumer products; however, the pandemic provided a solid growth boost for the segment. We project a strong year at 9.8% growth in 2021 vs 2020, and 8.5% in 2022 vs 2021. PSR
Yosyf Sheremeta, PhD, is Director, Product Management & Customer Support, for Power Systems Research
