Bank of America lifts its forecast for US economic growth on hopes for sweeping Biden-backed stimulus

Joe Biden
President-elect Joe Biden speaks about the US economy following a briefing with economic advisors in Wilmington, Delaware, on November 16, 2020.

  • Bank of America lifted its forecasts for US full-year and first-quarter economic growth, citing hopes for new stimulus under the Biden administration and strong consumer spending trends.
  • The bank’s economists lifted their first-quarter GDP forecast to 4% growth from 1% and boosted their 2021 estimate to 5% from 4.6% expansion.
  • Early indicators suggest the $900 billion relief package signed by President Trump last month is already lifting spending activity, the team said in a note to clients.
  • The $1.9 trillion relief plan revealed by Biden on Thursday can further accelerate a return to pre-pandemic economic strength, they added.
  • Visit Business Insider’s homepage for more stories.

Robust consumer spending and the likelihood of additional stimulus led Bank of America to boost its outlook for US economic growth on Friday.

Economists led by Michelle Meyer expect US gross domestic product to grow 5% through 2021, up from the previous estimate of 4.6%. The bank’s first-quarter GDP forecast was also revised higher, to 4% from 1%.

Early indicators suggest the $900 billion relief package passed by President Trump late last month is already lifting economic activity from its nearly frozen state, the economists said. Debit- and credit-card spending is up nearly 10% from the year-ago period as of January 9, compared to being up just 2% before new stimulus was rolled out.

Additional stimulus from a Biden administration adds to the bank’s bullish forecast. The President-elect revealed a $1.9 trillion relief plan on Thursday, pitching $1,400 direct payments, state and local government aid, and a $15 minimum wage as critical to reviving the virus-slammed economy.

Democrats’ new, albeit slim, majority in the Senate signals a version of the plan will reach Biden’s desk. That extra support stands to provide a major backstop for the economy through the new year, Bank of America said.

Read more: ‘I don’t believe that we’ve really left the recession yet’: Bond king Jeff Gundlach lays out the 2 risks that investors should watch nearly a year into the pandemic – and shares the 4 components of a balanced, winning portfolio

“There are risks in both directions, but we see them skewed to the upside,” the team said in a note to clients. “There is now a ‘fiscal put’ akin to the ‘Fed put.'”

Fresh fiscal relief also takes some pressure off of the Federal Reserve in the near-term, the economists added. Should new stimulus fuel stronger growth and inflation, the Fed could rein in its easy monetary policy stance sooner than initially expected. 

The Biden-backed stimulus also provides the fiscal support Fed policymakers clamored for throughout 2020. If the economy weakens further, the government can coordinate a fiscal- and monetary-policy response akin to that seen at the start of the pandemic, the team said.

Still, elevated COVID-19 cases and strict economic restrictions will delay a full recovery, they added. Bank of America expects GDP will return to pre-pandemic levels in the third quarter.

While front-loaded stimulus boosted the firm’s first-quarter forecast, the early passage of a relief deal cut its second-quarter growth estimate to 5% from 7%.

Read more: Global X’s lithium and battery ETF returned 126% in 2020 as electric vehicle-driven demand surged. One of the firm’s analysts shared 4 stocks he sees ‘leading the rise’ in the industry going forward.

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Dow drops 200 points as traders mull Biden’s stimulus plan and soft retail-sales data

trader upset
  • US stocks sank on Friday as investors digested President-elect Joe Biden’s stimulus plan and a December slump in retail sales.
  • Biden rolled out a $1.9 trillion relief proposal on Thursday that includes $1,400 direct payments, state and local government aid, and expanded unemployment benefits.
  • While Democrats’ soft Senate majority increases the odds of a deal being passed, Republican opposition could strip the bill of some elements or push for higher taxes to offset its cost.
  • Retail sales shrank 0.7% in December as COVID-19 lockdowns cut into holiday-season spending, according to Census Bureau data published Friday. Economists expected sales to hold flat from November.
  • Watch major indexes update live here.

US equities fell on Friday amid a drop in retail sales and concerns that President-elect Joe Biden’s stimulus proposal could lift taxes.

Biden unveiled a $1.9 trillion fiscal relief plan on Thursday that includes $1,400 direct payments, expanded federal unemployment benefits, and state and local government aid. Democrats’ victories in Georgia runoff elections greatly improve the party’s chances at passing such a sweeping stimulus measure.

Yet GOP opposition could strip the bill of some components before its passage. Lawmakers could also call for higher taxes to justify the legislation’s hefty price tag, a move that would surely rankle investors hoping for President Donald Trump’s low tax rates to remain in place.

Here’s where US indexes stood shortly after the 9:30 a.m. ET open on Friday:

Read more: Global X’s lithium and battery ETF returned 126% in 2020 as electric vehicle-driven demand surged. One of the firm’s analysts shared 4 stocks he sees ‘leading the rise’ in the industry going forward.

“The very health of our nation is at stake,” Biden said in a speech revealing the plan, adding that failure to pass a large-scale relief package “will cost us dearly.”

Stocks extended losses after retail sales data showed a third-straight monthly decline to close out last year. Spending at US retailers contracted 0.7% in December as COVID-19 restrictions offset holiday-season sales, according to Census Bureau data published Friday. Economists surveyed by Bloomberg expected sales to stay flat from the month prior.

November’s reading was revised lower to a 1.4% contraction, suggesting surging coronavirus cases and lockdown measures swiftly cut into a V-shaped rebound in consumer spending.

“This likely is the nadir for retail sales, as the late-December stimulus and the pending stimulus under the Biden administration will boost both bank accounts and consumers’ spirits,” Robert Frick, corporate economist at Navy Federal Credit Union, said.

Read more: ‘I don’t believe that we’ve really left the recession yet’: Bond king Jeff Gundlach lays out the 2 risks that investors should watch nearly a year into the pandemic – and shares the 4 components of a balanced, winning portfolio

Fourth-quarter earnings kicked off with JPMorgan beating revenue and profit expectations. The bank reported a 42% jump in net income, bolstered by the release of $2.9 billion in loan-loss reserves.

Citigroup reported less-than-stellar results Friday morning. While the bank’s revenue landed above estimates, weaker-than-expected performance in its fixed-income division contributed to a miss on quarterly earnings. The business reported revenue of $3.09 billion over the period, below the consensus expectation of $3.2 billion.

Bitcoin dropped below $38,000 as the cryptocurrency’s volatile trading week came to a close. The token climbed back above $40,000 on Thursday but failed to retake the record highs seen one week ago.

Spot gold slid 0.5%, to $1,836.64 per ounce, at intraday lows. The US dollar strengthened against the majority of Group-of-10 currency peers and Treasury yields declined. 

Oil prices sank as the stronger dollar cut into its recent climb. West Texas Intermediate crude fell as much as 1.7%, to $52.68 per barrel. Brent crude, oil’s international benchmark, dropped 1.9%, to $55.37 per barrel, at intraday lows.

Now read more markets coverage from Markets Insider and Business Insider:

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The US lost 140,000 jobs in December. All of those jobs were held by women.

woman interviewer
A woman sitting in an office.

  • The December jobs report from the Bureau of Labor Statistics said 140,000 jobs were lost last month.
  •  All of those lost jobs were held by women, data shows.
  • The disparities grow even wider when considering race, with Black and Latina women working in retail and education sectors being hit the hardest.
  • Visit Business Insider’s homepage for more stories.

The US posted a surprise decline in payrolls in December and all of the 140,000 jobs lost were held by women, according to data.

Analysts had expected an uptick in employment in December but instead American businesses shed 140,000 nonfarm payroll. The country’s unemployment rate stayed steady at 6.7%, according to data released Friday by the Bureau of Labor Statistics.

“The most recent Bureau of Labor Statistics (BLS) monthly jobs report shows that the economy lost 140,000 net jobs in December, marking the first month of job loss since the economy started adding back jobs in May 2020,” said the National Women’s Law Center, a nonprofit focused on achieving gender justice in courts and public policy. “All of the jobs lost were women’s jobs, with women losing 156,000 jobs and men gaining 16,000.”

December’s numbers reflect a slowdown in US economic recovery, which has been mostly stagnant as the coronavirus continues to spread. Small businesses nationwide were forced to shutter to curb its spread. 

Many of them – including barbershops and retail stores – have reopened and are offering services while adhering to COVID-19 restrictions, including caps on the number of people present in person. Other small businesses remain closed or are operating at reduced capacity.  

Job losses have been particularly steep across woman-dominated sectors like education. Women have also lost jobs in the hospitality and retail sectors. 

All together, there were 2.1 million fewer women working last month than there were in February, right before the pandemic had seriously hit small businesses and brought intense economic fluctuation, according to the NWLC analysis.

The disparities grow even wider when considering race. 

The coronavirus has hit Black and Latina women harder than white men and women. Black and Latina women working in retail or across essential service sectors have been disproportionately laid off during the coronavirus pandemic.

About 1 in 12 Black women and 1 in 11 Latina women remain unemployed, the NWLC analysis says. Those figures represent about 8.4% and 9.1% unemployment rates. 

About 5.8% of white men, in comparison, reported unemployment in December.

To offset some of the economic devastation, President Donald Trump signed the second coronavirus relief bill in December. It was a $900 billion relief package that contained $600 direct payments for most Americans.

Read the original article on Business Insider