Surging coronavirus infections will slow growth this fall and winter. Hotels, restaurants, movie theaters, airlines, and other hard-hit businesses cannot fully recover if the pandemic worsens.
The failure of Congress and the Trump administration to reach a business cycle deal means more small businesses are sure to fail, state and local layoffs may accelerate, and stimulus controls are not coming to ease the pain for consumers anytime soon.
“Without further tax assistance through 2021, poorly managed health conditions and election uncertainty could mean a long winter,” wrote Gregory Daco, chief US economist at Oxford Economics, in a report on Monday.
“Very shaky” prospects
Jefferies is straight more pessimistic and forecasts annualized growth of just 2% in the last three months of the year. This is because the early withdrawal of fiscal stimulus is likely to mean a blow to consumer spending – the biggest engine of the economy and the brightest spot of recent times.
“The prospects for the fourth quarter are from our point of view very shaky,” wrote Aneta Markowska, finance economist at Jefferies, in a report to the customers on Thursday. “The economy lost a lot of its dynamism in the summer.”
The risk of double-dip recession is real
“The way forward will inevitably be an uphill battle,” wrote Seemah Shah, chief strategist at Principal Global Investors, in a report on Thursday. “With virus cases rising and a new tax package not yet seen, economic concerns are resurfacing.”
This is why some economists believe the recovery will stall.
“We’re slipping back into recession,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, told CNN Business this week.
Jeoff Hall, Managing Economist at Refinitiv IFR, warns that there is “a strong possibility of negative growth” in the fourth quarter, possibly even a double-digit decline in GDP, as COVID cases rise and new restrictions are imposed.
Even the real estate market, arguably the hottest part of the economy, is showing signs of cooling.
Upcoming home sales fell unexpectedly in September, according to new figures released on Thursday. This is the first drop since April and despite the record low mortgage rates.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, is more nervous in early 2021 than he was late this year.
“We are concerned that the first quarter may not see any growth,” Shepherdson wrote in a report, “unless new momentum is passed almost immediately after the January 20th inauguration.”
When does the stimulus come?
Therefore, the election result will play a crucial role in the recovery.
If the Democrats win the election, Jefferies expects a massive $ 3.5 trillion stimulus plan. That would lead to a stronger recovery, Jefferies said, with GDP growing 5.5% in 2021.
But the size of a stimulus package would be smaller, perhaps much smaller, if Democrats and Republicans shared control of Congress and the White House. Such a scenario would cause GDP to grow more slowly, Jefferies said.
Whoever is responsible is facing a huge challenge: the U.S. economy still shed nearly 11 million jobs before the pandemic. JPMorgan doesn’t see a full recovery of jobs until 2022.
“The easy part of the economic recovery is over,” said Lauren Goodwin, an economist with New York Life Investments.