JPMorgan Chase & Co. expects the U.S. economy will shrink in the first quarter as states rollback coronavirus reopenings due to the new wave of COVID-19 infections that are sweeping across the country.
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The number of new daily U.S. COVID-19 infections totaled more than 141,600 on Sunday, off Friday’s peak of nearly 199,000. Weekends typically report lower case counts. There have been 12.3 million cases reported in the U.S. and nearly 257,000 deaths.
“The holiday season – from Thanksgiving through New Year’s – threatens a further increase in cases,” wrote a JPMorgan team led by chief U.S. economist Michael Feroli. “This winter will be grim.”
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A spike in new infections has caused some states to reverse the easing of COVID-19 restrictions that occurred earlier this year. Most California counties have been placed under overnight curfew to slow the spread of the virus while states like Illinois have shut down indoor dining and placed restrictions on other businesses.
The new measures will cause the U.S. economy to shrink by 1% in the three months through March after growing 2.8% during the final quarter of 2020, Feroli said, noting that a vaccine will “limit the damage.”
Pfizer Inc. and BioNTech, Moderna Inc. and AstraZeneca plc announced that late-stage trial data showed that their respective COVID-19 vaccines were effective and the companies hope to receive emergency use authorization before the end of the year.
A vaccine is likely to be available to frontline health care and other essential workers and at-risk populations by the spring and to everyone else in the second half of 2021, giving a “meaningful support to growth” by the middle of the year, according to Feroli.
The JPMorgan team sees Congress passing $1 trillion of stimulus by the end of the first quarter, giving a further boost to growth in 2021 after an expected “year-end twist” from the Fed before the central bank steps aside and to see if its policies boost inflation.
The firm forecasts the U.S. economy will grow at a seasonally adjusted annualized quarter-over-quarter rate of 4.5%, 6.5% and 3.8% in the final three quarters of next year.
“One thing that is unlikely to change between 2020 and 2021 is that the virus will continue to dominate the economic outlook,” Feroli wrote.