Goldman Sachs cuts its US GDP forecast for the 3rd month in a row because of the ‘virus drag’ on consumer spending and the global semiconductor crunch

Goldman Sachs cuts its US GDP forecast for the 3rd month in a row because of the ‘virus drag’ on consumer spending and the global semiconductor crunch

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  • Goldman Sachs cut its US GDP forecast for 2021 and 2022 based on the hit to consumer spending from Covid-19.
  • The bank downgraded its 2021 forecast to 5.6% from 5.7% and its 2022 forecast to 4% from 4.4%.
  • The global semiconductor shortage was another factor it said likely “won’t improve”.
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Investment bank Goldman Sachs cut its forecast for US economic growth for a third month in a row, based on the twin impacts from Covid-19 on consumer spending and the global supply shortage of semiconductors, according to a note to clients on Sunday.

The bank downgraded its forecast for annual gross domestic product (GDP) growth for 2021 to 5.6% from 5.7% previously and to 4% from a prior estimate of 4.4% for 2022.

“After updating our estimates of the key growth impulses that drive our consumption forecast-reopening, fiscal stimulus, pent-up savings, and wealth effects-and incorporating a longer-lasting virus drag on virus-sensitive consumer services spending, we now expect a more delayed recovery in consumer spending,” economist Joseph Briggs said in the note.

This is the third month in a row that the bank has cut its GDP forecast. Two factors were mostly to blame: the fact that Covid-19 has eroded consumer spending and the semiconductor supply crunch, which many economists do not expect to improve until next year.

Remote working has meant that, for example, instead of spending money on lunch outside the home, people have instead prepared home-cooked meals, and are not yet fully ready to return to more normal types of activity, the note said.

Households said they were less than 50% comfortable going to concerts, theaters, or resuming international travel, according to the note.

Goldman also cut its forecast for fourth-quarter growth this year to 5.6% from 5.7%, and cited a reduction in fiscal support as another contributing factor, as the Federal Reserve prepares to wind down some of the measures it put in place to protect the economy during the pandemic.

“Fiscal support is set to step down significantly through the end of the year. Although we maintain a positive outlook for household income because a recovering labor market and firm wage growth- particularly among low-wage workers-should keep income above its pre-pandemic trend through end-2022, the decline in transfer income will likely cause a pullback in spending for some households,” Briggs wrote.

In addition to the steps the Fed has taken to stave off recession, the US House of Representatives passed a $1.2 trillion stimulus package back in March to shore up the economy, including stimulus payments to ordinary Americans, weekly jobless benefits and more.

Goldman Sachs left its forecast for the US unemployment rate unchanged. The bank expects it to fall to 4.2% by the end of 2021 and 3.5% by 2022, based on the most recent jobs report. The unemployment rate fell by 0.4% to 4.8% in September, the U.S. Bureau of Labor Statistics reported Friday.

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