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COVID and the Economy

by Calculated Risk on 9/09/2021 04:59:00 PM

I’m tracking new cases, hospitalizations and deaths due to COVID, mostly to assess the impact on the economy.

Just over a month ago, many Americans, and economic analysts, assumed COVID was mostly behind us. Unfortunately they were wrong, and COVID has impacted the economic outlook once again.

For example, on July 30th, Goldman Sachs wrote: “we are launching our Q3 GDP tracking estimate at +9.0% (qoq ar)”

Then in mid-August, they downgraded their forecast: “We have lowered our Q3 GDP forecast to +5.5%, reflecting hits to both consumer spending and production.”

And this week, on September 6th, they downgraded their forecast again: “We now expect GDP growth of 3.5% in Q3.” That is about one third of the real growth they expected just 5 weeks ago!

Other analysts have made similar downgrades for Q3. There are several reasons for the change: the surge in COVID cases has impacted some consumer spending, supply chain disruptions are ongoing (and COVID is impacting the supply chain recovery), and possibly some downgrades due to policy (expiration of unemployment benefits during a COVID wave).

Right now it is looking like new cases are peaking, but far above the 12,000 per day level we saw in June. And it looks like we might see another Winter wave for several reasons:
1) There is a huge reservoir of virus (about 150,000 new cases have been reported per day).
2) Schools are reopening, and kids spread the virus easily.
3) Many Americans have moved past taking even the easiest mitigation efforts (like wearing masks indoors).
4) Only 53.4% of Americans are vaccinated, and the percent is increasing very slowly.
5) Thanksgiving is only 77 days from now (followed by Christmas and New Years). Families will want to gather in person this year.
A severe winter COVID wave could be a significant economic drag in Q4, and Q1 2022. And the most vulnerable are losing their extended unemployment benefits, and could be facing eviction. Hopefully there won’t be another wave. Best to all

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