- The US economy is looking resilient right now, with much of Wall Street dropping their recession calls.
- But growth will “slow meaningfully” over the fourth quarter, according to Goldman Sachs.
- Student loan repayments, the autoworkers’ strike, and a potential government shutdown will all drag on GDP, the bank warned.
The economy may be looking resilient right now – but three headwinds could change that over the final three months of 2023, according to Goldman Sachs.
The bank warned this week that the resumption of student loan payments, the autoworkers’ strike, and a potential shutdown in Washington could all lead to US real Gross Domestic Product growth dipping in the fourth quarter.
“GDP growth is set to slow meaningfully between Q3 and Q4,” a team of strategists led by Goldman’s chief economist Jan Hatzius said in a research note Tuesday, adding that they’re expecting the economy to expand by just 1.3% over the latter period.
“We expect the slowdown to be shallow and short-lived, with GDP growth rebounding to 1.9% in [the first quarter of 2024] as these temporary drags abate and income growth re-accelerates on the back of continued solid job growth and rising real wages,” they added.
Millions of Americans will have to start repaying their federal student loans next month after House Republicans ended a pause of more than three years that had been intended to give borrowers financial relief during the pandemic.
That resumption could weigh on spending and chop around half a percentage point of the US’s GDP growth, according to Hatzius’ team.
The strategists identified the strike by Detroit 3 auto workers that began on Friday and the fact that “the federal government looks more likely than not to temporarily shut down” as other economic headwinds to keep an eye on over the fourth quarter, with each deadlock likely to pose a greater threat the longer it drags on.
The bank’s gloomy outlook comes at a time when markets have been buoyed by a barrage of positive economic data, with top Wall Street names like Bank of America as well as the Federal Reserve itself shelving previous predictions that the US would suffer a recession this year.
Hatzius himself said earlier this month that there’s now just a 1-in-7 chance of a severe economic slump, citing a belief that the Fed won’t raise interest rates again in 2023 as it winds down its battle against inflation.