Goldman Sachs is becoming increasingly pessimistic about the US economy as coronavirus support from the government phases out and consumer spending remains on an uncertain path.
Over the weekend, the Wall Street bank downgraded its forecast for America’s economic growth, which is closely monitored by the investment community. Goldman Sachs now expects the economy to expand by 5.6% this year, compared to a previous estimate of 5.7%. In 2022, growth is projected to expand by 4%, down from 4.4%.
It’s the second time Goldman Sachs has revised its 2021 forecast lower in two months.
Breaking it down: The bank’s team of economists said two main factors drove the change in its outlook. One is that Covid-19 relief programs are set to wind down “significantly” through the end of the year, eliminating a source of income for some households.
The other concern is that consumers are not doling out enough money on services to compensate for a drop in spending on goods.
“Consumers’ service spending will need to recover quickly to offset a decline in goods spending as the latter normalizes from its current elevated level,” Goldman Sachs told clients. “This will likely prove challenging while Covid cases remain elevated, since many people still feel at least somewhat uncomfortable engaging in many activities that were routine prior to the pandemic.”
It pointed to movie theater attendance as one sticking point. (James Bond film “No Time to Die” brought in $56 million at the North American box office over the weekend. That was a muted performance for the Bond brand, my CNN Business colleague Frank Pallotta reports.)
Goldman Sachs also thinks spending could decline as people continue to work from home, encouraging them to prepare their own lunches instead of popping into local restaurants.
Another view: Bank of America, for its part, has been encouraged by spending trends gleaned from US credit and debit card data. “We think the recent drop in cases has helped ease Covid concerns,” said Candace Browning, head of BofA Global Research.
The bank found that spending at daycare centers in September was 52% above last year’s levels and only 13% below the same period in 2019, which it called “an encouraging sign.” It also observed that spending on travel and entertainment is “improving,” though gains haven’t been felt evenly across the country. People have been significantly more willing to splurge on entertainment in Florida than in states like New York and Pennsylvania.
Bottom line: The big picture for Covid-19 in the United States is looking a little brighter as new infections and hospitalizations decline.
“Hopefully it’s going to continue to go in that trajectory downward,” Dr. Anthony Fauci, the nation’s top infectious disease expert, said Sunday.
But the country is still reporting about 95,000 new infections daily, which Fauci said is “way too high.” That’s making it difficult for economists to map out the way forward for America’s economy.
Watch this space: US banks have strong insight on the health of US shoppers since they track money flows. Investors will closely monitor their commentary on the subject when they report earnings later this week.
