U.S. unemployment will still surge to 25% because of COVID-19 economic devastation: Goldman Sachs

The worst is far from over for a U.S. economy reeling from COVID-19 pandemic devastation, but Goldman Sachs believes light is starting to appear at the other end of the tunnel.

U.S. GDP will crash by a 39% annualized rate in the second quarter, worse than a prior forecast for a 34% decline, Goldman strategists led by Jan Hatzius wrote in a note Wednesday. GDP in the third quarter is expected to snap back to 29% growth annualized, improved from a previous estimate of 19%. For the full year, Goldman sees growth falling by 6.5%.

“The U.S. economy now seems to be through the trough,” Goldman wrote.

The group added, “With the reopening process now underway in many U.S. states, we have more confidence that a large amount of activity will return fairly quickly. While some forms of activity might remain depressed for a while, others—auto production, non-COVID medical procedures, restaurant meals, and some retail shopping, for example—will likely rebound quickly, if incompletely.”

Goldman’s view on the economic recovery path fits with those of at least one member of the Federal Reserve.

In this Nov. 19, 2019, photo James Bullard, president of the St. Louis Federal Reserve Bank, gestures during an interview in Richmond, Va. (AP Photo/Steve Helber)

“I’m hopeful that we’ll have a good transition in the third quarter and we’ll get back to pretty close to normal by the fourth quarter,” St. Louis Fed President James Bullard said on Yahoo Finance’s The First Trade this week. Even still, Bullard acknowledged higher than normal unemployment will be with the U.S. economy for a while.

Hence, one shouldn’t break out those champagne glasses just yet.

Despite Goldman looking for the much talked about V-shaped economic recovery, unemployment will continue to be a major issue weighing on economic output. Goldman now expects the unemployment rate to peak at 25%, up from a prior forecast of 15%. The upward revision assumes more workers will lose their jobs and a larger share of them will be classified as unemployed.

The U.S. economy shed a record 20.5 million payrolls in April and the unemployment rate jumped to 14.7% from 4.4% in March.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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