Surging coronavirus infections will slow growth this fall and winter. Hotels, restaurants, movie theaters, airlines and other hard-hit businesses can’t fully recover when the pandemic is worsening.
The failure of Congress and the Trump administration to reach a stimulus deal means more small businesses will surely fail, state and local layoffs may accelerate and no stimulus checks are coming to alleviate the pain for consumers anytime soon.
“Without further fiscal aid until 2021, a poorly managed health situation and election uncertainty could make for a long winter,” Gregory Daco, chief US economist at Oxford Economics, wrote in a report Monday.
‘Very shaky’ outlook
Jefferies is even more pessimistic, projecting annualized growth of only 2% during the final three months of the year. That’s because the premature withdrawal of fiscal stimulus will likely deal a blow to consumer spending — the biggest driver of the economy and brightest spot of late.
“The outlook for Q4 is very shaky in our view,” Aneta Markowska, chief financial economist at Jefferies, wrote in a report to clients Thursday. “The economy has already lost a lot of momentum over the summer.”
Double-dip recession risk is real
“The path forward will inevitably be an uphill struggle,” Seemah Shah, chief strategist at Principal Global Investors, wrote in a report Thursday. “With virus cases on the rise and a new fiscal package yet to be seen, economic concerns are once again brimming to the surface.”
That’s why some economists believe the recovery will stall.
“We are sliding back into recession as we speak,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, told CNN Business this week.
Jeoff Hall, managing economist at Refinitiv IFR, warns there is a “strong possibility of negative growth” in the fourth quarter, perhaps even a double-digit decline in GDP, as COVID cases rise and new restrictions are imposed.
Even the housing market, arguably the hottest part of the economy, is showing signs of cooling off.
Pending home sales unexpectedly dropped in September, according to new numbers released Thursday. That marks the first decline since April and comes despite record low mortgage rates.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, is more nervous about early 2021 than the end of this year.
“We’re worried that the first quarter could see zero growth,” Shepherdson wrote in a report, “unless new stimulus is passed almost immediately after the inauguration on January 20.”
When will stimulus arrive?
That’s why the outcome of the election will play a pivotal role in the recovery.
If Democrats sweep the election, Jefferies expects a massive $3.5 trillion fiscal stimulus plan. That would drive a stronger recovery, Jefferies said, with 2021 GDP increasing by 5.5%.
But the size of a fiscal stimulus package would be smaller, perhaps much smaller, if Democrats and Republicans split control of Congress and the White House. Such a scenario would cause GDP to grow more gradually, Jefferies said.
Whoever is in charge will take on an enormous challenge: The US economy is still down nearly 11 million jobs from before the pandemic. JPMorgan doesn’t see a full jobs recovery until 2022.
“The easy part of the economic rebound is over,” said Lauren Goodwin, economist at New York Life Investments.