Growth to pick up by spring and latest round of stimulus may not be the last, PNC economist says
Philadelphia Business Journal
The $900 billion stimulus bill is crucial to supporting the U.S. economy “through a very difficult period” into early 2021, positioning economic growth to pick up by spring, the chief economist at one of the Philadelphia region’s largest financial institutions said.
After months of bickering, the House and Senate passed the legislation by early Tuesday.
“With an acceleration in coronavirus cases in recent weeks and states and municipalities re-imposing restrictions on economic activity — although in a more targeted fashion than earlier in the year — economic growth at the end of 2020 has slowed from the torrid pace in the fall,” said Gus Faucher, chief economist at PNC Financial Services Group Inc.
After an initial flurry of hiring in May and June when businesses reopened, job growth has slowed for five straight months, he said, while initial claims for unemployment insurance have been increasing in recent weeks. Some measures of consumer activity have weakened in November and December.
With support from the federal government, consumers should be able to maintain their spending over the next few months, PNC (NYSE:PNC) believes. Aid to small- and medium-sized businesses will allow more firms to remain open until widespread vaccination takes hold and the pandemic begins to recede.
Further support from the government is also possible.
“The incoming Biden administration could provide more stimulus, especially if Democrats end up in control of the Senate,” Faucher said.
That hinges on results of elections in Georgia in January.
“With federal borrowing costs extremely low right now — the federal government can borrow for 10 years at an interest rate of less than 1% — it makes sense to provide near-term support to vulnerable sectors of the economy to ensure a strong economic recovery from the pandemic,” Faucher said. “In addition to more aid for the unemployed, who are likely to spend most of the funds that they receive, many state and local governments would benefit from federal support, given pressure on their revenue sources from the pandemic. And the federal government should work to prevent unnecessary business failures. Permanent closures of firms over the next couple of months that could be viable post-pandemic would create a significant drag on longer-run economic growth.”
PNC is the third-largest bank in the Philadelphia area with nearly $26 billion in local deposits.