The bulls should pop the icy cold Dom Perignon a few days early because dawdling President Trump signed the $900 billion COVID-19 relief bill, suggest the often optimistic forecasters at Goldman Sachs.
On Monday, Goldman’s chief economist Jan Hatzius lifted his first quarter U.S. GDP forecast to 5% from 3% in large part from the effects of new stimulus checks to U.S. households. Hatzius left his expectation for sequentially improved GDP from from the second quarter through the fourth quarter unchanged. For the full year, Goldman now sees GDP growth of 5.8% versus 5.3% previously.
“While the income effects of the fiscal package will be very front-loaded, we expect the impact on consumer spending to be more evenly distributed throughout the year. The virus resurgence and continued state and local restrictions will likely weigh on spending in the short term, leading to more pent-up demand later in the year following mass vaccination,” Hatzius explains.
‘A rise to $2,000 would increase disposable income’
The relief bill includes $600 direct payments to most American adults, and Hatzius says he hasn’t factored in Congress passing Trump’s demands for $2,000 stimulus checks. But if those demands are somehow met by a bickering Congress, Hatzius believes the boost to the economy would be strong.
“While we do not assume it in our forecast, a rise to $2,000 would increase disposable income in Q1 significantly further, to levels above 2020Q2 by our estimates,” Hatzius added.
Under the new COVID-19 relief legislation — which was delayed by Trump as he clamored for fatter direct payments to households — single people earning up to $75,000 will receive a check of $600. Married couples bringing in $150,000 will get a check of $1,200. Both amounts are half of what was paid out directly to folks in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The bill also includes $1.4 trillion in funding to keep the government open, and it expands and extends unemployment benefits for millions of unemployed Americans.
‘This is not stimulus’
By most recent economic measures, relief from the government is needed now more than ever as the pandemic rages on and wreaks havoc.
New homes sales tanked 11% in November, the Census Bureau reported last week. The Commerce Department also said consumer spending fell in November for the first time since April.
The Conference Board said its closely watched consumer confidence index dropped to 88.6 in December from a downwardly revised 92.9 in November.
Although Goldman is upbeat on the power of the new stimulus bill, other economists on the Street are taking a more measured view. Their argument is that the bill simply plugs a hole in the struggling U.S. economy rather than laying the groundwork to sustainably dig out of the hole caused by the coronavirus.
“This is not stimulus,” RSM US LLP Chief economist Joe Brusuelas told Yahoo Finance Live. “This is direct aid to the American people who are in need of it during this holiday season.”
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