JP Morgan has joined the list of Wall Street giants to lower expectations for the U.S economic growth.
Michael Feroli, JP Morgan chief economist, has revised downwards his U.S Gross Domestic Product (GDP) estimates for the last quarter of 2020 and the first quarter of 2021, due to the possible lack of a stimulus deal until the end of the year. He said the lack of a near-term bill will drive a 12% contraction in disposable income next quarter.
In a note on Thursday, he wrote that the U.S economy will expand by 2.5% in the final quarter of 2020, down from the firm’s previous forecast of 3.5% growth while 2021 first-quarter growth will reach 2%, down from the prior 2.5% estimate, according to Business Insider.
The revised forecast from JPMorgan is in line with the projections made by its Wall Street peers in recent weeks.
Goldman Sachs economists cut their fourth-quarter estimate to 3% from 6% on Wednesday, similarly citing a lack of new stimulus before the end of the year.
Bank of America lowered its estimate to 3% from 5% in early September after calling stalled relief negotiations a “speed bump” for the nation’s economic recovery.
According to Feroli’s note, an encouraging trend in households’ saving activity kept JPMorgan from lowering its GDP estimates further, taking into account the upward trajectory of job growth.
The personal savings rate fell to 18% in July after peaking at 34% in April, and the firm expects a reading of 15% for August.
Feroli noted that the lack of a deal has its benefits. JPMorgan revised its 2021 fiscal deficit estimate to $2 trillion from $3.5 trillion in the note, citing the lack of a deal.
However, the outcome of the forthcoming presidential election in the U.S, can result in a revision of the forecast due to a possible change in the outlook for government spending plans.