- Goldman Sachs economists lowered their third-quarter US GDP growth forecast to 25% from 33% on Saturday, citing weak consumer services spending and the strong uptick in national coronavirus cases.
- Reimplementation of strict lockdowns and social distancing practices in states including California, Florida, and Texas are “already having a noticeable impact on economic activity,” the team led by Jan Hatzius wrote in a note.
- The firm lowered its full-year growth projection to -4.6% from -4.2%.
- Still, offset spending and reopening benefits led Goldman to boost its first-quarter growth forecast to 8% from 6.5%.
Revived state restrictions and continued stay-at-home activity will drag on the US economy more than previously expected, Goldman Sachs economists said Saturday.
The bank sees gross domestic product growing 25% in the third quarter, down from its previous expectation of a 33% increase. The year’s total economic contraction will worsen to 4.6% from 4.2%, the team led by Jan Hatzius wrote in a note to clients.
The downward revision is largely fueled by a slower-than-expected recovery in consumer spending. The recent resurgence in coronavirus cases has kept Americans from returning to restaurants, travel, and retailers. Stunted spending on key services will likely push a consumer comeback into September, the team said.
“The healthy rebound in consumer services spending seen since mid-April now appears likely to stall in July and August as authorities impose further restrictions to contain virus spread,” they wrote.
The manufacturing and construction industries have largely avoided such a halt and will continue their recovery, Goldman added. The firm maintained its projection for 8% growth in the fourth quarter.
Goldman's latest economic forecast arrives just as the US plunges into its second wave of coronavirus infections. Daily new cases passed 50,000 over the holiday weekend and outbreaks in California, Texas, Florida, and other states are driving the reimplementation of strict shutdown measures. Texas' mask mandate shows some states are reacting swiftly to the uptick in cases, but it's still "admittedly hard to know" how the rest of the nation will adapt in the coming weeks, Goldman said.
"A combination of tighter state restrictions and voluntary social distancing is already having a noticeable impact on economic activity," the economists said.
Though the pandemic will put off an economic recovery into next year, late reopenings will accelerate growth in 2021, the bank added. Recent positive updates from coronavirus vaccine trials also suggest a treatment could reach the market next year. Several economists have pointed to an effective virus treatment as a key fuel for boosting consumer confidence, as the lasting risk of contracting coronavirus could keep Americans at home even as economies reopen. In all, vaccine hopes and delayed reopening benefits drove Goldman to boost its first-quarter forecast to 8% from 6.5%.
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