JPMorgan Economists Warn of U.S. Contraction Early Next Year

Date: 24 November 2020

Author: Reade Pickert

Source: Bloomberg Quint

 

Issued in its JPMorgan 2021 U.S. outlook last Friday, JPMorgan Chase & Co. analysts forecasted an economic contraction at an annualized pace of 1% for U.S. in the next quarter as various states impose restrictions on businesses and activity in the wake of a record surge in Covid-19 cases. This comes after an estimated growth of 2.8% in 4Q and the reported 33.1% expansion in 3Q that came after a record contraction in 2Q.

 

“While the economy powered through the July wave, at that time the reopening of the economy provided a powerful tailwind to growth,” JPMorgan economists Michael Feroli, Jesse Edgerton and Daniel Silver wrote in the note. “The economy no longer has that tailwind; instead it now faces the headwind of increasing restrictions on activity.”

 

Although the U.S. recovery, from the recession that began in February, has been stronger than expected overall (largely thanks to government stimulus package and the Federal Reserve monetary policy actions), hospitalization and deaths from Covid-19 are rising and more than 1 million new cases had been recorded over the past week.

 

Larry Kudlow, White House economic adviser said on Friday that he expects the V-shaped recovery to persist beyond January, with remarks to reporters that “the economy has tremendous momentum.”

 

Lawmakers meanwhile continue to be at a standstill over the size of another fiscal relief package, but Treasury Secretary Steven Mnuchin is attempting to revive stalled stimulus talks. Without the extension, millions of Americans are heading towards losing their jobless benefits at year end.

 

Bloomberg Economics is with JPMorgan in the forecast of a U.S. contraction, expecting GDP to contract at a 0.5% annualized pace in the first quarter.

 

In conjunction, positive news on Covid-19 vaccines bodes well for the U.S. economy, boosting JPMorgan’s confidence on the economy expanding strongly in 2021’s second and third quarters. The analysts also anticipate another $1 trillion of fiscal support by the end of the first quarter, which helps build the case for robust growth in the following two quarters.

 

Dallas Fed President Robert Kaplan suggested that for now, the economy could be at risk of slipping back into recession.

 

In an interview on Bloomberg Television on Thursday, he said “We’ll have to see what the fourth quarter looks like,” and that “It is possible we could have negative growth if this resurgences gets bad enough and mobility falls off enough.”