Spending Less Now? Here’s How It May Affect the Economy

Goldman Cuts GDP Estimates for Second Time in Three Weeks

Masked shopkeeper hands bag to customer.

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The resurgence in coronavirus cases is delaying the country’s comeback on a variety of fronts, including the economic trajectory. 

For the second time in three weeks, economists at Goldman Sachs cut their economic growth forecast for the U.S. because of an expected weakening in consumer spending.

They now expect third-quarter U.S. gross domestic product to grow 3.5%, rather than 5.5%, as they had forecast on Aug. 18, or 9%, as they had anticipated before that. They also cut their fourth-quarter estimate, lowering it to 5.5% from 6.5% and bringing the annual figure to 5.7% from 6%. 

“The coronavirus situation has deteriorated over the last couple months,” Ronnie Walker and other economists at the investment bank wrote in a Tuesday report about the “harder path ahead.”  

It was less than three weeks ago that Goldman Sachs factored in a larger-than-expected impact from the fast-spreading delta variant, saying consumers were less likely to go out and spend money and that supply and manufacturing bottlenecks would persist. The fresh downgrades take into account new expectations for even slower consumer spending as the government’s financial support fades and renewed fears of contracting the virus make it more difficult for hard-hit high-contact service sectors to fully recover. 

The federal government’s pandemic unemployment benefits expired Monday and restaurants and bars lost 41,500 jobs in August, the first decline since December.

The bleaker outlook on consumer spending, combined with Friday’s government report that August was the worst month for overall job growth since January, even pushed the Goldman economists to increase their forecast for unemployment to 4.2% from 4.1% by yearend. (It was 5.2% in August.)

Looking further ahead, lower growth this year suggests bigger growth next year as some spending is realized later than originally expected, the economists wrote. In 2022, they’re now forecasting GDP growth of 4.6%, up from 4.5%.

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Article Sources

  1. Bureau of Labor Statistics. “The Employment Situation, August 2021.”

  2. Federal Reserve Economic Data. “All Employees, Food Services and Drinking Places.”