Goldman Sachs: A Larger Delta Variant Impact On GDP And Inflation

Goldman Sachs note that the impact of the Delta variant "on growth and inflation is proving to be somewhat larger than we expected. We have lowered our Q3 GDP forecast to +5.5%, reflecting hits to both consumer spending and production. Spending on dining, travel, and some other services is likely to decline in August, though we expect the drop to be modest and brief. Production is still suffering from supply chain disruptions, especially in the auto industry, and this is likely to mean less inventory rebuild in Q3."

• "Lower growth in Q3 should imply stronger growth in Q4 and 2022 as virus fears hopefully diminish and the service sector recovery and inventory rebuild resume, and we have raised our forecasts beyond this quarter. Our revised forecast implies 2021 growth of 6% on a full-year basis (vs. 6.4% previously and 6.2% consensus) or 6.2% on a Q4/Q4 basis, and 2022 growth of 4.5% on a full-year basis (vs. 4.4% previously and 4.3% consensus) or 3% on a Q4/Q4 basis."
• "The Delta variant and other disruptions are also likely to further raise prices of supply-constrained durable goods through year-end. We now see further short-term upside for new cars, consumer electronics, and appliances, and have therefore bumped up our core PCE inflation forecast to 3.75% year-on-year at end-2021. As prices of these goods and used cars fall next year, we expect core PCE inflation to dip below 2% next summer and to end 2022 at 2%."