Forecasters Downgrade U.S. Economic Outlook as Virus Spreads
A poster depicting a U.S. one hundred dollar banknote, front, is displayed at a currency exchange booth in New Delhi, India. (Photographer: Anindito Mukherjee/Bloomberg)  

Forecasters Downgrade U.S. Economic Outlook as Virus Spreads

(Bloomberg) -- It only took a week of turmoil in financial markets to convince forecasters the outlook for the U.S. economy this year has soured.

Wall Street analysts began downgrading projections for economic growth as jitters over the coronavirus outbreak took hold and the stock market endured its worst week since the financial crisis. While the spread of the virus in the U.S. has so far been limited and its trajectory is still uncertain, disruptions in the global economy may be enough to dent domestic economic activity in 2020, they said.

Bank of America Corp. reduced its forecast for U.S. growth this year to 1.6% from 1.7%, citing the potential for global supply chain disruptions and damage to consumer confidence.

“The former is already in play and is very likely to create challenges for multinational companies in the U.S. into the summer,” Michelle Meyer, head of U.S. economics at Bank of America, wrote in a report Friday. “The latter is being threatened given the violent sell-off in markets and warning from the CDC about the inevitability of the disease showing up on our shores.”

JPMorgan Chase & Co. downgraded its forecast for second-quarter economic growth to 1.5% from 1.75%, pointing to a worsening outlook for American exports due to a slowdown in growth outside the U.S.

“This revision solely incorporates the downwardly revised estimates of global growth,” Michael Feroli, JPMorgan’s chief U.S. economist, wrote in a Feb. 27 report. “We have not built in any further drag that would likely result from ‘community spreading’ of Covid-19 in the U.S. If that were to occur the impact on growth would be difficult to quantify but almost certainly much larger than the trade-related effects we have thus far incorporated in our forecast.”

What Bloomberg Economists Say:

Prior to the onset of Covid-19, BE forecast first-half consumer spending of 2.2% and business fixed investment in modest contraction (-0.7%) due in large part to the Boeing production halt. The implied equity shock reduces those estimates to 1.6% and -2.1%, respectively, which in turn reduces overall growth to 1.3% from 1.9% as previously estimated.

--Carl Riccadonna, Yelena Shulyatyeva

Read their analysis here: U.S. INSIGHT: Virus Aside, Growth to Skid on Market Shock

Private-sector forecasters are laying down markers ahead of Federal Reserve officials, who will soon enter a period of preparation for their March 17-18 policy meeting. Fed-watchers increasingly expect the central bank to cut interest rates, a sentiment that was fueled further by a rare unscheduled statement from Fed Chair Jerome Powell on Friday.

Powell said the “fundamentals of the U.S. economy remain strong,” though he added that “the coronavirus poses evolving risks to economic activity” and that the Fed would “use our tools and act as appropriate to support the economy.”

Some of Powell’s colleagues on the central bank’s rate-setting committee downplayed expectations prior to his statement. Chicago Fed President Charles Evans, speaking Thursday in Mexico City, told reporters it was too soon to adjust forecasts, adding that “we need to see some numbers, more than what I’ve seen so far.”

St. Louis Fed President James Bullard, speaking Friday in Fort Smith, Arkansas, told reporters that “adjustments to U.S. growth forecasts do not look very severe at this point” but said he would back a cut if the virus gets worse.

Other banks, including Barclays Bank Plc, Citigroup Inc. and Morgan Stanley, refrained from making forecast adjustments this week, but warned readers of downside risks that could ultimately hit growth.

©2020 Bloomberg L.P.

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