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This winter will be grim: JPMorgan warns of economic pullback


JPMorgan has predicted that U.S. first-quarter growth will be negative because of the recent COVID-19 surge, warning that ‘this winter will be grim.’

In a client note on Friday, the bank became the first Wall Street firm to break from the consensus view that GDP growth would continue to improve, citing rising cases across the country.

‘This winter will be grim,’ JPMorgan economists wrote, ‘and we believe the economy will contract again.’  

As businesses reopened this summer, the third quarter brought a record 33.1 percent annualized growth, but now JPMorgan expects GDP to slow to 2.8 percent in the fourth quarter and then shrink by 1 percent during the first three months of 2021.  

JPMorgan has predicted that U.S. first-quarter growth will be negative because of the recent COVID-19 surge, warning that ‘this winter will be grim’

The New York Fed’s Weekly Economic Index (WEI) is an index of ten daily and weekly indicators of real economic activity, scaled to align with the four-quarter GDP growth rate

Goods consumption has risen above pre-pandemic levels, but services remain below

Their outlook improves later on next year, when they see the economy rallying and growth of 4.5 percent followed by a robust 6.5 percent in the third quarter, based on positive news from vaccine trials.

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

The number of patients hospitalized with COVID-19 in the United States has jumped nearly 50 percent in the last two weeks, forcing states to impose new restrictions to curb the alarming viral spread. 

Nearly 79,000 people were being treated for the disease in hospitals across the country on Thursday, the most at any time during the pandemic. The country has been recording 161,607 new cases daily on a 7-day rolling average as of Wednesday. 

The intensifying pandemic may already have slowed hiring and begun to curtail retail spending on the cusp of the holiday shopping season.

Instead of the ‘tailwind’ of growth provided as stores reopened over the summer, the United States ‘now faces the headwind of increasing restrictions on activity. The holiday season – from Thanksgiving through New Year’s – threatens a further increase in cases. This winter will be grim,’ wrote the JPMorgan analysts.

Some local governments are taking more aggressive steps already, with New York City again closing schools. 

In a rare federal response from the ‘lame-duck’ administration of President Donald Trump, the U.S. Centers for Disease Control and Prevention has urged Americans not to travel for next week’s Thanksgiving holiday, which typically sees tens of millions on the move.

Most states, though, are moving gingerly, curbing restaurant hours or seating capacity, but not shuttering nonessential businesses like during the early months of the U.S. outbreak in the spring.

Still, the surge in cases appears to have capped the U.S. economic rebound, according to high-frequency data tracked by economists for real-time evidence about the recovery.

Employment at a sample of mostly small businesses from time management firm Homebase declined for a fourth week, and shifts worked across different industries fell, according to time management firm UKG.

‘The uncertainty that exists right now and has existed really since mid-summer is making it really hard for business owners to think about growth,’ said David Gilbertson, UKG vice president for strategy and operations. ‘We seem to take one step forward, and then one step back.’

The decline in shifts from mid-October to mid-November likely points to a weakening jobs report in November, he said.

Data from Oxford Economics shows the slowing economic recovery in recent weeks

Since the spring’s catastrophic drop in employment, the economy has clawed back about half of the more than 20 million lost positions. But momentum is slowing, and last week the number of new claims for unemployment insurance rose for the first time in about a month.

An index of new job postings from analytics firm Chmura as of August had reached a high of 85 percent of the level predicted in the absence of the pandemic, but is now at 67 percent.

Workers may be in for a ‘grim’ period, said AnnElizabeth Konkel, economist at Indeed Hiring Lab, whose index of job postings remains 13 percent below 2019 levels. 

Holiday hiring is largely complete, and unemployment benefits are expiring for many of those out of work since the spring, a lapse that may finally be weighing on national data.

Initially, the flood of government support increased incomes for many families and supported consumer spending. 

Data on 30 million JPMorgan debit- and credit-card customers, however, showed spending fell ‘notably’ in early November from a level just 2.7 percent below 2019 to 7.4 percent below last year, said JPMorgan economist Jesse Edgerton.

New York last week imposed a 10pm curfew on restaurants. Above, a sign is seen at Cafe Luxembourg in New York City

Declines were sharper in places where COVID-19 was spreading more rapidly but were still widespread, suggesting ‘a broader pullback in spending,’ Edgerton wrote. U.S. retail sales in October also grew less than expected.

That and other data indicate an outright decline in jobs in November versus October, Edgerton said, evidence that millions left jobless by the pandemic face a long road back to normal. 

Vaccine prospects, however, “represent a ray of light at the end of the tunnel,” said Gregory Daco, chief U.S. economist at Oxford Economics. Oxford’s recovery tracker rose slightly last week, snapping a five-week skid, a sign that the scale of economic collapse seen in the spring is not in the offing.

Data from OpenTable showed a slight rise in diners seated at restaurants over the past week even as new limits were imposed.

Some Federal Reserve officials have noted how businesses, particularly in manufacturing, construction and some parts of the retail sector, have adapted to operating during the pandemic. A New York Fed weekly index projecting growth in gross domestic product has risen steadily since the recession began.

But Oxford’s index and other data have also remained largely stalled, well below pre-pandemic levels. Data tracking cellphone movement from Unacast and Safegraph, for example, has shown no upward trend since summer.

That may remain the case until vaccines are rolled out to enough people to make a difference.

Meanwhile, “the recovery is becoming entrenched in a low-growth mode, and we are worried about signs of lasting economic damage,” Daco wrote.

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