The resurgent coronavirus has brought the U.S. economy back to the brink of contraction, the usually upbeat forecasters at Goldman Sachs have pontificated in a new note to clients.
Goldman Sachs chief economist Jan Hatzius slashed his fourth quarter U.S. GDP estimate to 3.5% from 4.5%, citing “rapid and broad-based resurgence of the coronavirus.” For the first quarter of 2021, Hatzius now expects the U.S economy to grow a paltry 1% compared to prior estimate of 3.5%.
Hatzius dubbed the next six months for the U.S. economy a “winter soft patch.”
“Timely data in virus-sensitive industries show clear signs of a growing hit from the virus resurgence. State and local restrictions have also ramped up over the last week, although they remain well short of measures taken earlier this year and more recently in Europe,” Hatzius said. He doesn’t rule out a contraction in growth in early 2021.
“Failure to reach a fiscal agreement by the end of Q1 or widespread and more stringent virus restrictions could lead to outright contraction in Q1,” Hatzius warns.
Signs of renewed U.S. economic weakness is starting to appear as states enact new mobility restrictions in an effort to gain some form of control back over the virus.
U.S. retail sales in October rose at their slowest rate since the spring, according to new data out of the Commerce Department last week. Retail sales rose a seasonally adjusted 0.3% in October, far slower than the 1.6% gain in September. Retailers such as Macy’s and Kohl’s reported very weak third quarters this week, too.
Meantime, the University of Michigan’s index of consumer sentiment fell to 77 in the two weeks ended November 10, down from 81.8 in October. The expectations component was the main driver — it dropped to 71.3% from 79.2 in October.
“Broadly, the challenge is restoring reasonable economic growth and maintaining it in the post-COVID environment. I think it’s going to be a different environment than most of us grew up in. It’s going to be an environment where there’s going to be slow and sluggish growth of demand, where interest rates are going to be essentially on the floor so there is not much that the Fed can do. It’s going to be an environment where there will be more insufficient inflation, where there is a shortage of investment opportunity,” explained former Treasury Secretary Larry Summers on Yahoo Finance Live.
Despite what is shaping up to be a sharp slowdown in growth in the current quarter, investors continue to bid up stock prices ahead of a possible COVID-19 vaccine becoming available before year-end. The Dow Jones Industrial Average, Nasdaq Composite and S&P 500 are hovering near record highs.
A few more lackluster economic reports this month at the hands of COVID-19 may change that, however.
This article originally appeared on Yahoo! Finance.
