Home / Markets News & Opinions / Goldman Calls It: U.S. Economy Is in Grave Danger Without Stimulus

Goldman Calls It: U.S. Economy Is in Grave Danger Without Stimulus

Published September 25, 2020 1:15 AM
Andrew Packer
Published September 25, 2020 1:15 AM
  • Goldman Sachs has cut its GDP forecast from 4% to 2%.
  • The lack of additional stimulus is the problem.
  • The investment bank doesn’t see additional stimulus until 2021.

The economic recovery is set to stall. That’s the view of Goldman Sachs, who sees the lack of further stimulus  as holding the economy back. The investment bank cut its growth forecast from 4% to 2%.

Lack of Stimulus Holding Back the Economy

Weeks ahead of the presidential election, House Democrats are pushing for another round of $1,200 checks  for qualifying Americans. Republicans are pushing for a smaller bill, focusing more on jobs and education. For now, the gridlock means no more stimulus.

Stimulus Plan Differences
Republicans and Democrats are deadlocked on how to proceed with further economic stimulus, and will likely remain until after the election. | Source: Forbes 

Stimulus measures included a one-time $1,200 check for all qualifying Americans. The unemployed also received additional weekly payments above state payments. At the corporate level, the Paycheck Protection Program offered support to businesses, provided they continued to employ the same workers.

The first stimulus plans were passed swiftly with bipartisan majorities. Now, with politics coming into play, it’s unlikely that any additional stimulus will occur for some time.

New Unemployment Trends Still Stubbornly High

Right now, the latest employment data shows a continued recovery. However, new jobless claims are still at elevated levels. 

That says layoffs are continuing. That’s likely from a combination of smaller businesses shutting down  to bigger companies, like Citigroup, laying off workers .

Unemployment Rate
The unemployment rate has been halved from its pandemic peak, but getting back to a historic average will take much longer. | Source: Federal Reserve Economic Data 

While some feared that unemployment from pandemic-driven shutdowns would rise to 20% or 30%, the unemployment rate peaked near 15% and is already back under 10%, with a current reading at 8.4% .

The latest data show that many are still without jobs months after areas have started to reopen. Halving the unemployment rate again will take much longer than the few short months from the pandemic peak. And the trend may flatline from here.

That could have a troublesome effect on the economy, as lower-wage workers lack the income to make rent, much less buy food.

With most of the unemployment occurring at lower income levels, further stimulus would boost a large number of lower-income workers who tend to spend nearly all their earnings . That’s in contrast to higher-wage workers. They have had extra income to invest in the stock market or profit from the strong housing market .

Trouble Ahead for Economy, Markets Without Further Stimulus

The economy already appears to have stalled from the lack of additional stimulus.

It’s clear from the labor market that many higher-wage jobs were mostly unaffected, at least until now. If the economy struggles to recover at a slower rate, businesses may have to start making do without their white-collar workers as well .

Add it all up, and this warning from Goldman Sachs is worth listening to. If the job market falters, even the stock market will have a tough time shrugging off its recent weakness and heading to new highs.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.