The US economic recovery is turning from ‘forecast to fact’ but inflation is not a concern, Goldman Sachs says

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Hiring picked up rapidly in March as the US economy continued to reopen

  • Goldman said the strong US economic recovery is turning “from forecast to fact” as hiring picks up.
  • Its chief economist said the economy should grow 7.2% in 2021 after contracting 3.5% in 2020.
  • Yet Goldman said it is not overly worried about inflation, because unemployment should weigh on prices.
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The jump in employment in March shows that the rapid US economic recovery is “turning from forecast to fact,” Goldman Sachs has said.

Goldman’s chief economist, Jan Hatzius, said that despite the predicted 7.2% jump in US GDP in 2021, inflation was unlikely to be a problem as the economy would stay “well below” full employment.

The US economy added 916,000 nonfarm payroll jobs in March, data showed on Friday – far above economists’ expectations of 660,000.

Hatzius said in a note on Monday evening that the data “confirms that sharp acceleration is turning from forecast to fact.”

He said Goldman expects the US economy to grow rapidly in the first half of this year, thanks in large part to President Joe Biden’s $1.9 trillion stimulus package.

“We expect real GDP growth to climb from 7.5% in Q1 to 10.5% in Q2 on the back of the recent $1,400 tax rebates as well as the ongoing reopening of the most covid-sensitive sectors,” Hatzius wrote.

Goldman predicts the economy will grow 7.2% in 2021, well above the consensus estimate of 5.7%, after shrinking 3.5% in 2020. It then expects growth of 4.9% in 2022.

Yet Goldman’s chief economist said the bank is less worried than some others about “overheating” in the economy – that is, dangerous inflation.

“Our estimates show that the various growth boosts – from reopening, fiscal easing, and financial conditions – should only push output and employment modestly beyond full capacity.”

Goldman has downgraded its forecast for “core personal consumption expenditures inflation” to peak at 2.3% year-on-year in April, up from 1.4% in February.

Stronger growth expectations have prompted concerns among some investors that inflation could start to rise sharply, potentially causing the Federal Reserve to cut back on support for the economy sooner than expected.

Yet Goldman predicted that underlying US inflation would remain “well below the Fed’s 2% target, consistent with an economy that remains well below full employment.”

“All this has increased our confidence that Fed officials will be able to stay the course in exiting only very gradually from their highly accommodative stance,” Hatzius wrote.

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Green stocks have got caught up in the tech sell-off. But it’s just a dip, as climate investing is set to power ahead under Biden, according to JPMorgan

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President Joe Biden has pledged to tackle climate change

  • Investors may have become overexcited with some green stocks, JPMorgan’s European heads of ESG research said.
  • Yet green investing is only just getting started, they said, as Joe Biden and others focus on the climate.
  • The research chiefs said the US is unlikely to let the EU be the standard-setter on green investing.
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Green stocks have sold off quite aggressively this month, but fears of a bubble are overblown and a new climate focus from Joe Biden and other governments means environmental investing is only just getting going, JPMorgan’s co-heads of ESG research for Europe have said.

Jean-Xavier Hecker and Hugo Dubourg told Insider the Biden-Harris green stimulus plans, China’s sustainability push and Europe’s new environmental investing rules would all boost the market and create new opportunities.

The recent stock-market volatility – triggered by rising bond yields – has hit green stocks, such as those in renewable energy and electric vehicles, along with tech, after these sectors last year.

The iShares clean energy exchange-traded fund was down 12% in the month to Friday according to Bloomberg data, for example, while the S&P sustainability index has underperformed the wider market. Electric vehicle stocks such as Tesla and Nio have fallen sharply too. The S&P 500, meanwhile, has gained over 3% so far in March.

But Dubourg said: “The stocks that have tumbled are largely solar and EVs, where the valuations exploded at the end of last year. So it’s not really ESG investing overall which has been questioned.”

He said the market is “not being nuanced enough” in its approach to environmental, social and governance investing.

Hecker said investors had focused on the “simplistic trade” in recent months, bidding up green favorites. Tesla is a prime example, rising more than 500% over the last year, but falling around 7% in the month to Friday. Yet the market should “not be too concerned about green bubbles,” he said.

“The climate ambitions of the Green Deal in Europe, of the Biden-Harris platform in the US, of China with its 2060 carbon-neutrality ambition will be much more transformative,” he said. The Biden administration’s advisors are hoping to spend around $3 trillion, with climate change a key focus.

Hecker added that the Biden administration is likely to boost green investing as it tries to match Europe’s advancements on ESG rules. “There is no way the US is going to let Europe be the standard setter on ESG,” he said.

Europe introduced new reporting rules for companies earlier in March that aim to help investors work out which assets really are green. It is part of a wider push by the European Union to set standards for climate-conscious investing.

Green investing had a bumper year in 2020, despite the coronavirus crisis. Goldman Sachs analysts said in a note ESG equity and fixed income funds attracted record inflows in Europe and the US last year, at 184 billion euros ($216 billion) and $50 billion, respectively.

Yet there are growing concerns that the craze for green investing is not as climate-friendly as it makes out. A report from a group of global campaign organizations on Wednesday that the world’s biggest banks, including JPMorgan, have invested $3.8 trillion in fossil fuel firms since the Paris climate agreement was signed in 2016.

A separate report released on Monday by the Climate Action 100+ investor group, which collectively managed $54 trillion, found companies were so far badly failing to live up to their climate pledges.

Mindy Lubber, Ceres CEO and Climate Action 100+ committee member said there is an “urgent need for greater corporate action and higher ambition.”

Hecker and Dubourg – who work independently of JPMorgan’s banking operations – said that although some companies could do more, it will take a while for the effects of commitments to be seen. They said Europe’s new rules were a positive step in this regard, as they provide clear benchmarks for firms to be measured against.

As governments increasingly focus on climate change, new opportunities will crop up in sustainable investing, they said. For example, the Biden administration’s climate plans are likely to extend, or increase tax credits for renewables and support carbon-capture technology.

Hecker said carbon capture is “something which at some point is going to take off because it will be needed as part of the mix… to deliver on the Paris agreement goals.”

The JPMorgan ESG research chiefs said tackling climate change would require even major polluters to change their ways and become much more environmentally friendly.

“There will be no such thing as these stocks increasing by 4,000% again,” Hecker said. “Now you need to be looking for relative winners and differentiated business models.”

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President Biden reiterates his support for a $15 minimum wage

Joe Biden town hall
Joe Biden at a CNN town hall at the Pabst Theater in Milwaukee, Wisconsin, February 16, 2021.

  • At a town hall on Tuesday night, President Joe Biden discussed a minimum wage increase.
  • Biden reiterated his support for a $15 minimum wage, and stressed an increase would be gradual.
  • This increase is currently included in Biden’s $1.9 trillion stimulus package.
  • Visit the Business section of Insider for more stories.

In his first presidential town hall, President Joe Biden again signaled his support for a $15 minimum wage. 

Biden was questioned by a business owner, who expressed concern that businesses in areas with a low cost of living would have to shutter if it went up. 

Biden said it’s “not illegitimate” for small businesses to worry about the impact of increasing the minimum wage in one “fell swoop,” but that he still supports the raise. He said he believes it would have both medium- and long-term benefits for both small and big businesses. 

He also said “there are studies that show that by increasing the minimum wage to $15 an hour, it could have an impact on a number of businesses but it would be de minimis” – and he stressed the importance of implementing the raise gradually. 

An incremental increase

The minimum wage would be increased under the aptly named Raise the Wage Act of 2021, which is currently being considered as part of Biden’s $1.9 trillion stimulus package. It would increase the federal minimum from its current rate of $7.25 to $15 by 2025; tipped and subminimum wages would also incrementally increase to the standard federal minimum.

Democrats are looking to pass the measure through reconciliation, which requires only 51 votes and may have become more viable in recent days.

Researcher Yannet Lathrop of the National Employment Law Project previously told Insider that incremental increases make sense, as the act would more than double some states’ minimum wages.

“If the wage in those places was closer to $15, I think it would make a lot more sense to do it in one or two steps, but a gradual approach is probably better so that businesses have a chance to adjust to the higher wages,” she said.

Biden also said that if that $7.25 minimum wage had been indexed to inflation, the minimum wage today would be around $20 an hour.

When asked about a recent Congressional Budget Office (CBO) report that projects a $15 minimum wage would cost 1.4 million jobs, Biden said several other economic studies have suggested less of a negative impact on employment.

Several economists have offered critiques of the CBO’s job loss projections. Arindrajit Dube, a professor of economics at University of Massachusetts, Amherst, previously told Insider that he found the projections “pessimistic,” and the Economic Policy Institute released its own blog post discussing the report’s projections

“We’re at $7.25 an hour. No one should work 40 hours a week and live in poverty,” Biden said.

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