Goldman Sachs is now projecting a massive U.S. economic contraction in the second quarter of the year.
The bank is forecasting a 24% decline in economic activity next quarter, compared to their previous forecast for a 5% decline. That’s because U.S. economic data (specifically manufacturing data) have already started to miss economist estimates, even before Americans started to stay home to avoid spreading the coronavirus.
Their estimate, published Friday morning, is one of the most pessimistic on Wall Street. J.P. Morgan released estimates Wednesday that predicted a 14% contraction in second-quarter U.S. growth.
If Goldman’s economists are right, that means the U.S. is approaching the sharpest single-quarter decline in gross domestic product since the U.S. started measuring GDP in its current form. The current record for the largest quarterly slowdown was in the first quarter of 1958, the bank says, when GDP declined 10%.
“Why such an extreme forecast, especially in Q2? The sudden stop in US economic activity in response to the virus is unprecedented, and the early data points over the last week strengthen our confidence that a dramatic slowdown is indeed already underway,” the economists write. “In some US states, authorities have now issued statewide shutdown orders to slow the pace of virus spread and avoid overwhelming the health care system, measures that will further reduce the level of economic activity.”
That type of recession would hurt the U.S. labor market as well. The economists expect the U.S. unemployment rate to jump to 9% in the next couple of quarters, as “a surge in job losses appears to be happening very quickly.”
They add that the fiscal stimulus packages currently in Congress should have a mixed impact on the employment rate. Improved unemployment benefits could make it easier for small businesses to lay off workers, though a competing offer to forgive loans of cash used to pay workers may encourage them to stay on.
In other words, the outlook for the unemployment rate could turn on the final details of whatever stimulus packages U.S. lawmakers pass.
Write to Alexandra Scaggs at alexandra.scaggs@barrons.com
2020-03-20 15:08:00Z
https://www.barrons.com/articles/u-s-economy-could-contract-by-24-next-quarter-goldman-sachs-says-51584713292
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