Monthly US: Straining At The Leash

Democratic Senator-elect Raphael Warnock with President-elect Joe Biden in Atlanta earlier this year

The US has, so far, avoided the economic strife seen in Europe resulting from new lockdowns, but caution is warranted given evidence of the new strain having arrived. Nonetheless, as the vaccination programme gains momentum, the economy re-opens and further fiscal spending materialises, vigorous growth will return.

The short term outlook

Given rising numbers of COVID cases, we had been fearing that the 'stay at home' order in California would spread elsewhere, but so far this has not happened. Instead, individual states are largely limiting the restrictions to the cessation of dine-in eating in areas of high infections, restrictions on the size of gatherings, capacity limits in gyms, bars and some retail, and mandatory mask-wearing. This is far less onerous than what is being experienced in much of Europe.

It means we have chosen to revise higher our 4Q 2020 GDP number, but even this can’t hide a loss of momentum in the recovery. Consumer spending fell in November and we could see a further drop in December given the developments in California, the US’ most populous state. The fact that dine-in eating has ended is some major cities, including New York, forcing many businesses to close again, will also weigh on spending and jobs.

We can’t say for certain that restrictions won’t intensify. So far, only a handful of states has identified cases of the new, more infectious coronavirus strain, but if it gains a foothold and leads to an acceleration in hospitalisation rates we can well imagine 'stay at home' orders will return more broadly to the US.

This means we retain a cautious near-term outlook. We forecast only weak growth in the first quarter of 2021 despite the fact we have had a $900bn fiscal support package passed and $600 cheques are appearing in millions of people’s letterboxes.

The vaccine effect

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