Call it an “I Love Lucy” rate. Goldman Sachs Chief Economist Jan Hatzius said in a note to clients on Monday that he thinks the U.S. unemployment rate will fall to 3.25% by the end of 2020.
That would be the lowest since the 3.1% in October 1953, when Lucille Ball starred in TV’s top show, the Dodgers still played baseball in Brooklyn, and Dwight D. Eisenhower was the U.S. president.
But first, we have to get through the “Q1 shocks” from coronavirus and Boeing’s December halt to the production of the 737 MAX aircraft, Hatzius wrote.
Those two events likely will subtract three-quarters of a percentage point from GDP during the first three months of 2020, he said. In the second half of the year, the labor market will get a boost from a GDP pickup, he said.
“The U.S. labor market is going into whatever hit we will see from the coronavirus on a strong note,” Hatzius said. “When the near-term drags end, U.S. growth should show a nice pickup.”
The fallout from the pandemic is hard to predict, Hatzius said. During the SARS epidemic in 2002 and 2003, China accounted for 4% of the world’s GDP. That share is now up to about 17%.
“The coronavirus impact is highly uncertain, with risks that are probably skewed to the larger side,” he said.
The death toll from the two-month-old coronavirus that began in the Chinese city of Wuhan has already zoomed past the two-year total for SARS.
“Our estimate is based on the assumption that Chinese tourism flows plunge and U.S. exports to China fall sharply in Q1, but that the production outages in China don’t last long enough to do serious damage to global supply chains,” Hatzius said.
“But if reality is worse than our baseline assumption that new cases fall sharply toward the end of Q1 – or if the damage from a given severity of the virus is greater than we are assuming – we would have to downgrade our global and U.S. growth estimates more significantly,” he said.