Economists from Goldman Sachs are forecasting a dramatic 24% drop in the nation’s gross domestic product in the coming months, as governments, businesses, schools and more announce increasingly strict measures to keep people at home and apart to try to slow the spread of coronavirus nationwide.
In an analysis released Friday, economists with the major bank revised their previous forecast of a 5% drop in U.S. GDP for the second quarter (April through June) to a 24% drop, citing expected declines in manufacturing activity and services consumption. If that materializes, it would be historic: In modern history, the largest quarterly decline in U.S. GDP was a 10% drop in the first quarter of 1958.
“The sudden stop in U.S. economic activity in response to the virus is unprecedented,” the economists wrote, adding that in just the last few days, “social distancing” measures across the country have “shut down normal life” and have already led to a rise in layoffs and a “collapse” in consumer spending.
Since Thursday, California and New York have issued statewide orders for people to remain at home, other than seeking “essential” services. Cities and counties across the country have banned large gatherings or events and told bars, restaurants and other businesses to shutter. Major workplaces across the country have mandated that employees work from home and school districts have cancelled classes. Meanwhile, President Donald Trump closed the borders with Canada and Mexico.
The Goldman Sachs economists said their dramatic new projections reflected expected declines in spending in areas “that require face-to-face interaction,” assuming an 85% drop in spending in sports and entertainment spending, a 75% decline in transportation, and a 65% decline in hotels and restaurants.
The economists’ forecast predicts an increase in GDP for the second half of the year, up 12% and 10% in the third and fourth quarters respectively, making the full-year growth down about 4% overall compared to annual averages. The economists based their later-quarter projected increases on the potential effectiveness of mitigation measures; more testing for the virus; changes in weather; and possible medical breakthroughs, though they noted that the exact timing of these is “highly uncertain” and “relapses are plausible.”
They also predicted future unemployment reaching up to 9% in the coming quarters, in part modeling the projection on data from Hurricane Katrina in 2005, calling it a “modern natural disaster that had the largest impact on a regional U.S. labor market.”
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