The U.S. economy would receive a booster shot from a new COVID-19 aid package and a vaccine, according to Wall Street analysts.
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In the meantime, though, the economy's reopening from COVID-19 lockdowns has stalled with summer winding down and a disjointed return to school for students, according to Goldman Sachs Group.
Members of Congress have begun their August break without agreeing on further relief for voters hurt by virus-related lockdowns and layoffs after $600-a-week in additional unemployment benefits ran out at the end of July.
A composite scale constructed by the investment bank Goldman Sachs that assesses “stay-at-home” and “back-to-normal” categories held at 69 in the week ended Aug. 8, up from a low of 38 in late March and early April. A score of 100 would represent a return to normal. Overall, the bank scores the reopening a “4” on a scale of “10.”
“Stay-at-home metrics including eCommerce, at-home fitness and online payments decelerate as levels of penetration increase and offline alternatives continue to open up more broadly,” wrote a Goldman Sachs equity research team led by Heath Terry. “However, back-to-normal data remains largely mixed with minor improvements in dining and lodging mired down by flat measures of mobility, retail and entertainment, leaving the underlying measures for the reopening scale essentially flat for the third week in a row.”
The pace of the reopening remains a concern for the Federal Reserve, which on Wednesday released the minutes from a July meeting in which policymakers expressed worry that a resurgence of the virus and the lack of further financial aid from Congress to households, businesses and state and local governments could stunt the economic rebound.
Some Republican senators, however, have in recent days been working on a “skinny” bill that could extend additional weekly payments to unemployed Americans while also providing funds for schools and testing.
Talks on a larger deal collapsed amid differences between the Democrat-controlled House, which approved a $3 trillion package earlier this year, and the Republican-led Senate, where lawmakers who raised concerns about the federal deficit wanted to spend just $1 trillion.
Any agreement would help bolster an economy that is in the midst of battling back from a 32.9% annualized contraction in the second quarter, the sharpest of the post-World War II era.
As businesses began reopening in June, the number of new infections started to rise, causing some states to pause or slow their plans and the U.S. economy to “hit some speed bumps,” wrote Michelle Meyer, chief U.S. economist at Bank of America.
Meyer, who previously had a baseline forecast that the economy would grow at a 20% annualized pace in the third quarter, reduced her outlook to 15% growth before slowing to a 5% rate in the final three months of the year. She sees 2020 gross domestic product down 5.6% and 2021 GDP up 2.8%.
However, Meyer said the inability to reach an aid deal would shave 0.6 percentage points off this year’s growth and another 0.8 percentage points off of next year’s. On the flip side, a vaccine would provide a big boost to 2021 growth, raising full-year GDP by 2.7 percentage points.
Such an outcome would return the U.S. economy to “pre-COVID-19 levels by the end of the year, 4 quarters prior to our modal forecast,” she wrote.