Economists at Goldman Sachs have downgraded their outlook for U.S. economic growth, saying in a note to clients that the impact from the delta variant of Covid-19 and the end of fiscal stimulus measures will hurt consumer spending.
The firm cut its GDP growth projection to 5.5% in the fourth quarter, down from 6.5% in earlier projections. Goldman expects annual growth to be 5.7% in 2021, below the 6.2% expected on average by other shops.
“But the hurdle for strong consumption growth going forward appears much higher: the Delta variant is already weighing on Q3 growth, and fading fiscal stimulus and a slower service sector recovery will both be headwinds in the medium term,” Goldman’s Ronnie Walker said in a note to clients Monday evening.
While the rise of the delta variant has hurt consumer spending, Goldman economists project the impact could be short-lived if U.S. case numbers start to fall similar to the wave in Europe and other areas.
Two major impacts for the fourth quarter include less fiscal stimulus, as the federal enhanced unemployment benefit has now expired, and a shift in spending patterns after the initial recovery boom earlier this year.
“Spending on goods is likely to continue falling, though delayed purchases due to shortages of items such as new cars should slow the decline. But the rest of the service sector recovery will be much slower than the easy phase that followed vaccination,” the note said.
Goldman’s chief economist, Jan Hatzius, said in an accompanying note that while the slowing economic recovery raises more questions for the Federal Reserve, it should not ultimately change the central bank’s decision about when to slow its asset purchases.