Goldman Sachs cuts US growth forecast

Delta variant, headache for the Federal Reserve 1:02

New York (CNN Business) -

Goldman Sachs cut its forecast for economic growth in the United States for the second half of the year, noting the low investment in services by consumers, as well as the threats posed by the delta variant of the covid- 19.During the pandemic and the start of the recovery, Americans spent heavily on goods: used car prices soared, as did furniture and other household items, in response to increased demand and the shortage of materials.

• Prices are going up in America.

  This is what is getting more expensive

But in normal times, consumers spend much more on services, such as concerts or restaurants, and the large spending on goods that has defined the pandemic recovery so far is not sustainable to keep the US economy growing.

That's why rotation in people's spending is imperative, said Ronnie Walker, an economist at Goldman Sachs, in a note to clients Monday.

But fears around the delta variant keep spending on services low.

"Service categories in which spending remains depressed are generally associated with a high risk of viruses, such as live entertainment events, or related to office work, such as ground transportation or dry cleaners," Walker wrote.

• Dow suffers biggest drop of year as coronavirus delta fear hits Wall Street

In response, Goldman Sachs cut its forecast for gross domestic product (GDP) growth, the broadest measure of economic activity, by one percentage point in both the third and fourth quarters.

Between July and September, the Wall Street bank expected annualized growth of 8.5%, before falling to 5% in the last three months of the year.

For the full year, Goldman Sachs forecasts GDP growth of 6.6%.

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Starting in 2022, the pace of expansion will slow further, with a trend to return to the annualized growth of 1.5% to 2% that the nation used to record before the pandemic.

Although about half of Americans are fully vaccinated, cases are increasing.

In 48 states, the rate of new COVID-19 cases in the last week increased by at least 10% compared to the previous week, according to data from Johns Hopkins University.

In 34 of those states, the rate of new cases increased more than 50%.

• There is inflation in the United States.

  The delta variant could make it worse

The rise in delta infections comes at an inopportune time: the economy has not yet returned to normal, and a resurgence of infections could prevent people from fully participating in the economy.

"While most consumers seem comfortable going back to high-touch services, some remain hesitant," Walker said.

"They are likely to remain cautious for now as the spread of the delta variant keeps COVID fears alive, delaying a full recovery."

At the same time, Goldman economists believe that the impact of the delta variant on the economy will be somewhat limited: "It appears that the appetite for new government-imposed restrictions is low; early tests at the state level show little impact on the economy. consumer spending so far, and the virus situation appears to be improving already in the UK and other countries where it has spread before, "Walker wrote.

US Economy Goldman Sachs