Teresa Nguyen, a respiratory therapist, reviews patient records in a room for people with coronavirus disease (COVID-19) at a hospital in Hutchinson, Kansas on November 20, 2020.
Callaghan O’Hare | Reuters
The U.S. economy will partially recover faster than expected as the sectors most vulnerable to the recent coronavirus spread are not as badly affected, according to Goldman Sachs.
Separate analysis released by the company in the past few days suggests a pretty strong growth path. GDP is expected to grow 5.3% in 2021, compared to a decline of around 3.5% in 2020.
Economists were concerned that the aggressive spread of Covid-19 cases will take a particularly heavy toll on the ailing service industry, but Goldman said the data was “so far inconsistent with that view.”
“While many service industries saw sharp drops in activity in the early stages of the virus, only the most virus-sensitive sectors saw significant sequential decreases in November, with most other industries near or at their peak since the pandemic began,” Goldman economist David said Choi in a note.
“Even at a young age, the data so far suggest that a very high virus spread this time around may have a surprisingly small impact on overall activity,” he added.
Services make up a large part of the American economy. While the consumer accounts for around two thirds of the gross domestic product, services account for around 61% of all expenditure. However, the level of service expenditure in the third quarter was around 17% below the previous year’s figure.
Despite the general downturn, the service sector is on the mend and has been expanding for six consecutive months. In November, the ISM Services Index was 55.9%, indicating the number of companies reporting expanded activity. That was below the October level, but still in positive territory.
The pockets of the sector, particularly hospitality, remain depressed despite the recovery.
According to the Ministry of Labor, more than 3.4 million fewer workers are currently employed in the hospitality industry than in February before the pandemic declaration. The sector, which includes bars, restaurants, hotels, casinos and other customer-facing businesses, had an unemployment rate of 15% in November, compared with 5.7% in February.
According to the National Restaurant Association, the food service industry alone is projected to lose $ 240 billion this year as around 175,000 dining rooms are closed due to local restrictions this year. The association added that 37% of operators in a recent survey said their stores would close through June without any further tax help from Congress.
Goldman’s Choi predicts spending on services will continue to decline over the next few months, as the northeast of the country sees “greater virus headwinds” as it is an area “where policymakers are more willing have shown to impose restrictions “.
However, Goldman economists expect an earlier than expected surge from vaccines, which puts the US in a better position than other countries.
“Once again we seem to find that the impact of a particular virus outbreak on economic activity is not only smaller in the US than it is in Europe, but also diminishes from one wave to the next as both governments and individuals gradually learn to restrict only those activities which represent the highest risk of infection relative to their economic value, “said Jan Hatzius, Goldman’s chief economist, in a separate note.
The company is forecasting GDP growth of 5% in the fourth quarter, well above its previous forecast of 3.2%. Then in 2021 sequential annualized increases of 3%, 8.5%, 5% and 4% would be recorded, which would result in a total annual growth of 5.3%. This would be the strongest year for the US since 1984.
Goldman isn’t alone in its excitement – the Atlanta Federal Reserve’s latest GDPNow tracker estimate for the fourth quarter is 11.2% growth.