Date: Thursday, October 8, 2020
Source: The Wall Street Journal
WASHINGTON—Economists are dialing back their forecasts for U.S. economic growth this year as prospects fade for a renewed round of government stimulus.
Economists expect to see more workers facing permanent layoffs and a wave of business closures rather than the temporary shock and quick bounce back that some policy makers envisioned earlier this year. That could portend the kind of lackluster growth that followed the last economic downturn.
“This doesn’t mean the economy is going off a cliff,” said Julia Coronado, president and founder of research firm MacroPolicy Perspectives. “The risk is that we’re going to have a grinding recovery.”
While the economy initially rebounded more quickly than many economists expected, the recovery’s momentum has shown signs of slowing in recent weeks, as consumer spending growth weakened and job gains cooled.
The Labor Department said Friday employers added 661,000 jobs last month, the first time since April that net hiring was below one million. Household income dropped 2.7% in August as enhanced jobless benefits expired, the Commerce Department said last week.
The $2.2 trillion Cares Act Congress passed in March was meant to sustain businesses and workers until the summer, when many administration officials and lawmakers expected the virus would be under control, the economy would be reopened and workers would be back at their jobs. A number of provisions since have ended, even as Covid-19 cases stay high and rising and more than 10 million people remain unemployed.
“The implication of no further stimulus for the rest of the year is that the U.S. economy will face another headwind when it is already at risk of losing momentum,” said Ernie Tedeschi, an economist with Evercore ISI.
Efforts by House Speaker Nancy Pelosi (D., Calif.) and Treasury Secretary Steven Mnuchin to reach a broader agreement ended Tuesday afternoon after Mr. Trump tweeted that he had “instructed my representatives to stop negotiating until after the election.”
On Wednesday, Mr. Trump renewed calls for Congress to pass individual coronavirus relief measures, including more aid for airlines and direct checks for many Americans. Mrs. Pelosi reiterated Wednesday that Democrats were opposed to passing individual bills in the absence of a broader legislative package.
Economists at RSM US lowered their estimate for fourth-quarter gross domestic product growth to 2.25%, from 5.1%, following the president’s tweet on Tuesday. Goldman Sachs economists lowered their forecast to 3% from 6% last month, after deciding Congress was unlikely to advance another large aid bill.
Morgan Stanley economists said last month that failure to enact another relief package could push the recovery back by two quarters, delaying the economy’s return to pre-pandemic growth levels until the end of 2021.
“Strong underlying momentum can likely carry the economy for a bit longer, but ultimately the recovery would slow,” said Morgan Stanley economist Ellen Zentner.
Most Fed officials had expected Congress and the White House would come together on another round of fiscal support, and they said that “absent a new package, growth could decelerate at a faster-than-expected pace in the fourth quarter,” according to minutes from their Sept. 15-16 policy meeting released Wednesday.
While White House officials think another relief package would help the economy, they don’t view the recovery as dependent on another large bill, one senior administration official said.
Even if additional aid doesn’t arrive until January, “I don’t think it’s devastating,” the official said, pointing to strong housing and auto sales as evidence the recovery has momentum.
Businesses that may have been able to stay open during summer by operating outdoors could face a reckoning in many parts of the country as the weather turns colder. And workers who were able to tap into savings after emergency jobless benefits expired may soon see that money run out, Mr. Tedeschi said.
Employers will add roughly 320,000 fewer jobs each month than they would if enhanced unemployment benefits were extended in full, Mr. Tedeschi said. The impact could be even greater when taking into account the lack of direct payments to households, emergency small-business grants and aid for state and local governments, he said.
“What this means in reality is they’re probably not going to get relief until February, after the next president and the new Congress takes office,” he said.
Lawmakers will have another chance to reach an agreement in December, when Congress must approve a measure funding the government for the rest of fiscal year ending in September 2021. But analysts doubt either side will have an incentive to negotiate during the lame-duck session before a new Congress—and possibly a new president—take office.