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JPMorgan: 1Q GDP Will Contract 1% Due to 'Grim' COVID Surge

JPMorgan: 1Q GDP Will Contract 1% Due to 'Grim' COVID Surge
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By    |   Friday, 20 November 2020 01:01 PM

JPMorgan Chase & Co. analysts are forecasting a U.S. economic contraction next quarter as various states impose restrictions on businesses and activity amid a record surge in COVID-19 cases.

Wall Street had been expecting a positive first quarter and improving growth next year, CNBC reported.

The world’s largest economy is expected to shrink at a 1% annualized pace in the January-to-March period, JPMorgan said in its 2021 U.S. outlook issued Friday. That would follow estimated growth of 2.8% in the fourth quarter and the reported 33.1% expansion in the third quarter, which came after a record contraction in the prior period, Bloomberg reported.

For the second quarter of 2021, they see the economy rallying and growth of 4.5% followed by a robust 6.5% in the third quarter, based on positive news from vaccine trials, CNBC reported.

“This winter will be grim, and we believe the economy will contract again in 1Q,” the economists wrote.

“One thing that is unlikely to change between 2020 and 2021 is that the virus will continue to dominate the economic outlook. ... Case counts in the latest wave are easily surpassing the March and July waves,” the economists wrote.

“While the economy powered through the July wave, at that time the reopening of the economy provided a powerful tailwind to growth,” JPMorgan economists Michael Feroli, Jesse Edgerton and Daniel Silver wrote in the note. “The economy no longer has that tailwind; instead it now faces the headwind of increasing restrictions on activity.”

They noted that the economy was helped through the July outbreak by the economic reopenings. “The economy no longer has that tailwind; instead it now faces the headwind of increasing restrictions on activity. The holiday season — from Thanksgiving through New Year’s — threatens a further increase in cases,” they added.

The U.S. recovery -- from the recession that began in February -- has on the whole been stronger than expected, in large part due to a government stimulus package and Federal Reserve monetary policy actions. But hospitalizations and deaths from COVID-19 are rising, and more than 1 million new cases were recorded over the last week.

JPMorgan isn’t alone in its forecast. Bloomberg Economics expects gross domestic product to contract at a 0.5% annualized pace in the first quarter.

However, other economic experts tout a much brighter economic outlook.

White House chief economic adviser Larry Kudlow Friday disputed concerns voiced by two Fed officials who warned this week of economic worries as the coronavirus pandemic continues to surge across the county.

"I do not think the economy is slowing down," Kudlow said on Fox News' "America's Newsroom."

"Let me be more precise. People are mistaking the unemployment claims, the initial unemployment claims. In this pandemic, the best number to use is continuing claims, plus the pandemic employment assistance program," the veteran financial guru and former Ronald Reagan adviser said.

Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985, doesn't see a showdown, and he thinks there will be a "pretty good number" in a few weeks for the month of November.

"Housing is booming, consumer spending is booming, automobiles are booming, just booming," said Kudlow. "It is a strong V-shaped recovery ... there are pandemic risks, virus hotspot risks, I get that. All I'm saying is what we know on jobs and housing and retailing and cars and other areas, the economy is very hot," said Kudlow, who served as the Trump campaign's senior economic adviser.

He also disputed numbers showing that the economy is actually starting to flatten out, because "since May we've had 18 million reductions in unemployment claims of all kinds continuing in the pandemic. I'm not sure I get that particular chart. Look, 12 1/2 million new jobs have been added back. We're 50% of the way home."

But he did "admit there is hardship, there is virus risk, there's no question about that. We're following it very closely."

However, Loretta Mester of the Cleveland Fed and Robert Kaplan of the Dallas Fed told Bloomberg Television in separate interviews Thursday that they are concerned about the economy, without saying in detail what more the Fed would be able to do to help the economy, reports The Wall Street Journal.

Mester also said she's concerned about the lack of a fiscal relief package, adding that a policy that could be targeted to households and small businesses that really need aid could help.

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JP Morgan reportedly predicts that first-quarter growth will be negative because of the recent COVID-19 surge.
jpmorgan, gdp, economic, growth, covid
Friday, 20 November 2020 01:01 PM
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