Cold winter of the US economy


JPMorgan yesterday (November 20) became the first bank on Wall Street to warn the US of negative growth early next year

The epidemic in the US is getting worse and worse, the states gradually imposed the blockade again and Washington has yet to come up with a new stimulus package. This bleak background is dragging down the recovery of the US economy, when President-elect Joe Biden is about to take office.

JPMorgan yesterday (November 20) became the first bank on Wall Street to warn the US of negative growth early next year, as Americans are waiting for vaccines to be distributed. “This winter will be very harsh,” economists at JPMorgan said in their client report, “We believe the economy will see negative growth again in the first quarter.”

After the summer of explosive growth, the world’s largest economy is losing momentum rapidly. The third quarter recorded a record growth of 33.1% (adjusted on an annual basis), but JPMorgan believes that this rate will be only 2.8% in the fourth quarter and -1% in the first quarter of next year.

Manhattan streets are deserted because of Covid-19 earlier this year. Image: Reuters

The number of Covid-19 infections is skyrocketing, forcing New York City this week to order the closure of public schools, and California and Ohio to impose statewide restrictions. The zoo also closed again. These things will put more pressure on the US economy.

Meanwhile, the US government can not agree on how to resolve the situation of the new formation. Democrats and Republicans repeatedly failed to negotiate a new fiscal stimulus, raising fears that 12 million Americans would lose their subsidy benefits by the end of this year.

“The National Assembly has disappointed the country,” said David Kotok, Chief Investment Officer at Cumberland Advisors. Ian Shepherdson, chief economist at Pantheon Macroeconomics, criticized Congress for “neglecting its duty”.

The US Department of Finance yesterday also “added oil to the fire” when it wanted the US Federal Reserve (Fed) to repay $ 455 billion it was used for emergency loan programs. The Fed immediately protested.

US Treasury Secretary Steven Mnuchin said the money could be used by Congress to stimulate the economy. But no guarantee officials will reach an agreement. This is the time not unreasonable to disarm the Fed is using to combat the crisis.

“Trump should have signed a pre-election bill. He’s very unpredictable now and Congress looks chaotic,” Kotok said.

Even the American Chamber of Commerce – traditionally Republican-friendly – argues that Mnuchin’s decision “stripped off important liquidity options for the business at the time they needed it most” and that. “handcuffing a successor government unnecessarily.”

There are growing signs of rapidly spreading Covid-19 affecting the US economy. Retail sales barely increased in October. For the first time since April, spending at bars and restaurants declined. “The restaurant industry’s rally has stopped in October,” Shepherdson said.

Target – one of the largest retailers in the US – recorded strong growth in the third quarter. However, it also warned the pandemic and the economic situation is creating a lot of risk. Atlanta Fed President Raphael Bostic said this week on CNBC that officials are “closely following up to see if the weakness in retail spending gets worse.”

Meanwhile, the labor market is slowly recovering and will be pressured by new travel restrictions. Applications for unemployment benefits last week rose for the first time in a month. The 746,000 initial jobless claims are still higher than the peak of the 2008 financial crisis.

JPMorgan believes that the skyrocketing number of permanent job loss is “a worrying development”, as it may cause the newly unemployed to spend more time looking for jobs and potentially expire unemployment benefits first. when there is a new job.

Aneta Markowska – chief economist at Jefferies is also concerned that the latest pandemic wave will cause consumption – the biggest driver of the US economy – to drop to zero in the fourth quarter. “Downside economic risks are real,” Markowska said.

Wall Street will not be too much impact from the economic situation. DJIA is still near the 30,000 point mark, while the S&P 500 is still on track to have the strongest month in history. Investors put money on the shares will benefit from the vaccine. “If you are an investor with a long term view, you can ignore the negative news in the short term,” Markowska said.

However, the good news is that medical breakthroughs can help the economy return to orbit next year older. Both Pfizer and Moderna published optimistic Covid-19 vaccine testing results, with 95% efficacy – much higher than expected.

Although vaccine delivery takes time, the news still exposes many industries to the impact of the epidemic, such as hotels, airlines, yachts, restaurants and movie theaters. “The initial success of major vaccine trials has given them more confidence that medical intervention will limit the damage to the economy,” JPMorgan said.

JPMorgan forecasts the economy will grow “strongly” in the second and third quarter of next year, with 4.5% and 6.5%. Some other areas of the US economy are also booming. Thanks to record low mortgage interest rates and a wave of relocation, US home sales soared in October, to their highest level since 2006.

JPMorgan expects a rapid recovery in 2021 to minimize its vulnerability to the economy. But even then, “some permanent damage will be inevitable,” the company warned.

Ha Thu (According to CNN)

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