That would mark an extreme deceleration from the rapid growth economists are predicting for the third quarter, when Goldman expects US GDP to grow at an annualized pace of 35%.
“At this point we think it is clear that Congress will not pass additional fiscal stimulus this month,” Goldman Sachs economists wrote in a note to clients. “We now think any further stimulus will wait until early 2021.”
“It’s crazy that we could be adding more than 800,000 new people to the unemployment rolls and we’re not talking about finding relief or rescue for these people,” Austan Goolsbee, a former economic adviser to President Obama, told CNN’s Poppy Harlow on Thursday.
Failure to get a stimulus deal will cause a “meaningful hit” to disposable income in the fourth quarter, causing it to drop to pre-pandemic levels, Goldman Sachs said. That in turn will pressure consumer spending.
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Other economists are also slashing their forecasts. Pantheon Macroeconomics now expects annualized GDP growth of 4% in the fourth quarter, down from 10% previously.
“Our working assumption now is that Congress will not pass a substantial Covid relief bill until next year, probably in February,” Ian Shepherdson, Pantheon’s chief economist, wrote in a note to clients.
“On the aggregate level for the whole economy, we could be seeing a clear slowing down of what was supposed to be a fast rebound,” said Goolsbee, who is an informal adviser to Democratic presidential nominee Joe Biden.
Vaccine timing is the big wild card for 2021
The good news is that Goldman Sachs thinks consumer spending will not be hurt as much as feared. Indicators of consumer spending have “trended higher” even seven weeks after enhanced unemployment benefits lapsed, the report said. That’s why Goldman Sachs expects “softer but still modestly positive” consumer spending in the fourth quarter.
“This will delay the recovery somewhat but leave more room for catch-up next year,” the economists wrote in the note.
Goldman Sachs offset the dimmer fourth-quarter view with a slightly forecast for GDP growth during the final three quarters of 2021.
Citing press reports over the new vaccine timing, Goldman Sachs economists wrote that they are now “more confident that widespread distribution of a vaccine to the full population” will happen by the second quarter of 2021, instead of the first quarter.