A JPMorgan economist warned of weak spending and rising unemployment rates, citing that the U.S. economy may not yet exit the “deep hole” it fell into in the first quarter.
The U.S. economy, which has been experiencing two-quarter-long declines, is at risk of stagnant growth if the current situation persists. According to Michael Feroli, JPMorgan’s chief economist, the economy remains weak and is not seeing the growth it needs to climb out of the “deep hole” it fell into in April and May.
JPMorgan warns of grim outlook of the U.S. economy
Last week, Feroli told Bloomberg that while July’s rally in consumer spending is nearly relative to June’s pace, May and June’s rebounds were not as low as July’s. With such slow growth, he said that the U.S. economy is not getting the growth it needs to offset the first quarter’s massive drop, which he described as a “deep hole.”
“You have to remember that in May and June you had big rebounds, and that appears to be petering out a little here, in July,” Feroli explained.
The chief economists also mentioned the growing number of the unemployment rate as an indicator that provides “high-frequency look at the economy.” He also said that it might take time before the rate drop below the five percent mark.
Consumer confidence last month fell to 92.6 from June’s 98.3, as per Conference Board data released Tuesday, July 28. The drop, according to the agency, is massively due to the resurgence of coronavirus in the country.
It turned out to be much more significant compared to what they had forecasted as well.
Policymakers call for fiscal aid
With the U.S. economy’s current situation, Fed policymakers recently urged the government to provide financial aid to help families and businesses weather the recession.
Charles Evans, Chicago Fed president, said that the U.S. economy might collapse further if people stop spending due to low income as well as the economic uncertainties brought by the health crisis.
“Fiscal policy is fundamental to a better baseline outlook, to a stronger recovery and getting the unemployment rate down, people back to work safely, and ultimately reopening the schools safely,” Evans told Reuters.
Recently, the Commerce Department had also reported the worst GDP slump in the country since the 1940s. The United States gross domestic product fell to an annualized rate of 32.9%, which Feroli called “shocking, but not surprising.”
“We do believe there is some permanent damage to the economy here,” the JPMorgan economist said.
The economist also warned that growth equals last year’s fourth quarter might not even in the last quarter of 2021.