- JPMorgan is the latest Wall Street bank to slash its forecast for US economic growth because of weakened hopes for near-term stimulus.
- The bank on Thursday lowered its fourth-quarter 2020 estimate to 2.5% from 3.5% and cut its first-quarter 2021 growth forecast to 2% from 2.5%.
- The lack of fresh fiscal aid has an “immediate impact” on household incomes and will drive a contraction in disposable income into 2021, Michael Feroli, the bank’s chief economist, said in a note.
- JPMorgan projected that the absence of a new stimulus measure would also lower the 2021 federal deficit to $2 trillion from $3.5 trillion.
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Dwindling odds of a new stimulus deal are driving economists to tamper expectations for US economic growth. JPMorgan on Thursday became the latest Wall Street giant to follow suit.
Michael Feroli, the bank’s chief economist, lowered his gross-domestic-product estimates for the fourth quarter of 2020 and the first quarter of 2021. The US economy will expand by 2.5% in the final quarter of 2020, he wrote in a note, down from the firm’s previous forecast of 3.5% growth. First-quarter growth will reach 2%, down from the prior 2.5% estimate.
Household incomes will see the “most immediate impact” from the lack of additional fiscal aid, Feroli said. Another spending package would drive a 24% annualized increase in disposable income through a second round of relief checks and the resumption of expanded unemployment benefits, according to the bank. But the lack of a near-term bill would drive a 12% contraction in disposable income next quarter.
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An encouraging trend in households’ saving activity kept JPMorgan from lowering its GDP estimates further, the note said. The personal savings rate fell to 18% in July after peaking at 34% in April, and the firm expects a reading of 15% for August. Should job growth continue its upward trajectory this month, Americans may shift some of their saving to spending and lift growth in the fourth quarter, Feroli said.
The absence of a new stimulus bill has its upsides, the economist added. JPMorgan lowered its 2021 fiscal-deficit estimate to $2 trillion from $3.5 trillion, citing the lack of a deal. The forecast stands to change before the year is out, as the presidential election could change the outlook for federal spending plans.
A “blue wave” would likely prompt greater spending, and even a divided government would likely lean toward larger deficits over slashed spending, Feroli said.
Congress has largely shelved plans for a new relief bill. Republicans have shifted their focus to filling the Supreme Court vacancy left by Justice Ruth Bader Ginsburg’s death. Legislators on both sides of the aisle are also rushing to pass a spending measure to avoid a government shutdown.
Still, some hope remains for stimulus progress ahead of the November election. Treasury Secretary Steven Mnuchin indicated on Thursday that new aid was “still needed” and told legislators he remained in talks with House Speaker Nancy Pelosi on passing a measure. Separately, House Democrats moved forward with a $2.4 trillion proposal that includes funds for American families, airlines, and restaurants.
JPMorgan’s updated forecast meets projections made by its Wall Street peers in recent weeks. Goldman Sachs economists on Wednesday cut their fourth-quarter estimate to 3% from 6%, similarly citing a lack of new stimulus before the end of the year.
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