Economists at Goldman Sachs Group Inc. have lowered their forecast for growth in the U.S. economy this year for a second time, citing the COVID-19 Delta variant and dwindling fiscal support and pointing to a “harder path” ahead for the American consumer than previously anticipated.
In a report to clients on Monday, economist Ronnie Walker wrote that overall expansion in 2021 is now seen at 5.7 percent in comparison with an expected rate of 6 percent published at the end of August.
While consumption in the United States has jumped by 16 percent since the worst of the pandemic and also returned to its pre-virus state in the second quarter, Walker painted a gloomy path forward, with plenty of hurdles to overcome.
Explaining the reasoning behind the lowered forecast, Walker wrote that American consumers are likely to spend less money amid the surge in the Delta variant of COVID-19, while fading fiscal stimulus support and a slower service-sector recovery, also played a part.
He added that supply-chain disruptions had affected inventory restocking too, and hit production again in the third quarter.
“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,” Walker wrote.
The weaker growth will set the scene for more of a pickup next year, Walker noted. Goldman economists raised their forecast for 2022 to 4.6 percent up from its prior estimate of 4.5 percent but don’t expect it to decline further, based on two main reasons.
“First, our best guess—based on the experiences of some European countries and the recent decline in domestic positivity rates—is that U.S. virus cases will start falling later this month,” the economist wrote.
Secondly, they noted an increase in people adapting to the current virus climate, along with a surge in vaccinations, which could likely give a boost to consumer spending.
“People have adapted their spending habits, widespread vaccination has reduced the likelihood of government restrictions, and vaccinated individuals are less likely to voluntarily disengage from the economy,” he wrote.
This is the second time in just a month that Goldman Sachs revised down its growth forecast, citing the impact of the Delta variant. On August 18, economists lowered their tracking estimate in the third quarter to 5.5 percent from 9 percent.
However, they raised their fourth-quarter estimate to 6.5 percent from 5.5 percent, noting predictions that fears surrounding the virus will slowly diminish, services sector recovery will resume, and inventories will be replenished.
The latest revision also comes shortly after the Labor Department released its disappointing August jobs report which showed the U.S. economy added just 235,000 jobs during the month, versus expectations of around 750,000.
Reuters contributed to this report.