Service sector

Goldman Sachs Cuts U.S. Growth Outlook Due to Service Sector Weakness

A number of categories in the service sector, including live entertainment, are still quite depressed and the transition to the office is faltering, so the U.S. economy will not be as robust this year as expected, investors said Monday. Goldman Sachs economists.

Accordingly, Goldman GS,
-2.03%
lowered its GDP forecast by one percentage point in each of the next two quarters – to a growth rate of 8.5% in the third quarter and 5% in the fourth quarter. Growth for the year was reduced to 6.6% from the previous estimate of 7%.

Goldman’s forecast had been remarkable because it was so much higher than the consensus. The company’s forecast is now gaining attention as it now predicts a much steeper downturn over the next year and a half.

US growth will slow to trend GDP growth of 1.5% to 2% by the second half of next year, the company said.

A consensus survey of economists, compiled by the Philadelphia Federal Reserve, expects the U.S. economy to grow at a rate of 4.3% for all of 2022.

This could derail or slow down the Fed’s planned move towards a more neutral policy.

Concerns about the outlook have reduced pressure on the Fed to act quickly to start cutting bond purchases by $120 billion a month. The central bank’s interest rate committee will meet on Tuesday and Wednesday. Fed Chairman Jerome Powell will hold a press conference following the meeting.

The US economy peaked in the first half of this year. For the U.S. economy to remain robust, consumer spending will need to shift from goods to services, Goldman said. But spending on services remains low.

Categories that remain mild are associated with high virus risks or related to office work. These talk longer to improve than Goldman had anticipated.

For example, office footfall in major cities is still only a third of pre-pandemic levels, the firm said.

Americans “are likely to remain cautious for now as the spread of the Delta variant fuels covid fears,” the firm said.

DJIA Stocks,
-1.43%

SPX,
-1.90%
were lower on Monday as investors worried about growth prospects.