Goldman Sachs economists are highly optimistic about the Q3 GDP as they have raised their consensus forecast to 35% from 30%, almost 14% greater than the forecast of Wall Street.
Goldman Sachs economists are expecting things to improve swiftly in the Q3 with the GDP growth hiking up to 35%. The main reason for GDP’s growth is anticipated because of higher consumer spending which has notably impacted the economic growth in recent times and will continue to grow during the ongoing quarter.
After facing a major setback in March and most of the second quarter, it became difficult for medium- and small-scale businesses to survive the unprecedented economic circumstances. After things started to come to normal, however, with new COVID-19 policies, people surprising increased their spending.
Despite reduce unemployment benefits, consumers seem to spend in late August, which was possibly due to second quarter savings. The Goldman economists wrote:
“Following the sharp rise in spending in late spring and early summer, the virus resurgence and the surprise fiscal tightening threatened a reversal. But spending instead rose strongly in July, and four high-frequency measures indicate a further 1-2% increase in real spending in August.”
The sudden drift in the increase of the sales in the market has made Goldman Sachs economists be highly optimistic and raise their GDP consensus estimate for the third quarter. With the current forecast of 35% GDP growth, the Goldman tracking forecast is now 14% ahead of the Wall Street forecast, and it sees the consumer contributing 12 points of that gap.
The economists highlighted that they predicted a 1.25% increase in August consumption made in their GDP estimate, while the Atlanta Fed GDP currently, sees a decline in consumption.
The Goldman economists said the end-of-summer spending rate for unemployment benefit recipients and for lower-income zip codes more generally is also well above Q2 levels. They anticipate that it would probably bounce back by late September as retroactive top-up checks arrive.
As of July 31, the U.S. government was no longer paying any extra $600 a week in pandemic relief to the unemployed people but some reported to have received a federal payment of $300. Economists believe that the major reason for the increase in spending during late summer was due to a high savings rate in Q2.
The total increase in GDP conceals a decline among unemployment benefit recipients, as the August spending was down by 8% compared to July on average, as per Cardify data. The economists said that the $600 top-up checks represented more than half of income for many such consumers during the last quarter, and the spending decline is more moderate than prior estimates.
Moreover, driven by a sudden push from consumers, inventories have become a positive this quarter, added Goldman. The leading global investment banking network expects a 5.9%-point contribution during Q3.
So, upgrading the forecast from 30% to 35% shows that the stronger-than-expected August jobs reported earlier this month, which has raised the expectations of Goldman Sachs. With better GDP progress expected in Q3, the second quarter GDP plunged by 31.7%.
The Goldman Sachs economists expect a vaccine of COVID-19 in the market early next year. They believe that the sequential strength in the data in Q3 also bodes well for Q4 and beyond. Whereas, much of the remaining output gap is concentrated in virus-sensitive sectors.