Washington”•The Federal Reserve is set to meet this week ahead of a key GDP estimate as new data shows recovery in US manufacturing, although surging coronavirus cases threaten the economy’s gains.
The jam-packed week of economic news comes as lawmakers in Washington debate provisions of another stimulus package to follow up on the $2.2-trillion CARES Act passed in March as COVID-19 hit.
The business shutdowns caused by the pandemic are expected to see the US economy shrink an unprecedented 35 percent in the April-June quarter when the Commerce Department releases its advance GDP estimate on Thursday.
However, some sectors have begun bouncing back, with retail and new home sales recovering from the coronavirus hit and data from the Commerce Department released Monday showing durable goods orders rising 7.3 percent on demand for transportation equipment.
But Oxford Economics warned that the prevalence of coronavirus in the United States, where more than 57,000 new cases were reported in the 24 hours to Monday, threatens the gains.
“The sugar rush from re-openings has now faded and a resurgence of domestic coronavirus cases, alongside very weak demand, supply chain disruptions, historically low oil prices and high levels of uncertainty will weigh heavily on business investment,” Oxford Economics said.
Amid the durable goods data, transportation equipment grew 20 percent or $9.2 billion, particularly among motor vehicles and parts, where new orders were up 85.7 percent and shipments rose 83.1 percent.
In a sign of Boeing’s continued struggles, new orders for non-defense aircraft slumped 462.3 percent, deep into negative territory, as customers canceled orders previously placed with the plane maker.
The Fed will likely take such indicators into account as it begins its two-day policy meeting on Tuesday, but few big moves are expected since the committee had already slashed its benchmark lending rate to zero in mid-March.
If Fed boss Jerome Powell addresses the surge in COVID-19 cases, he will likely reiterate “that the Fed is prepared if necessary to provide more support to the economy,” said Mickey Levy of Berenberg Capital Markets.
Another possibility is that the Fed might link its movement of the lending rate to inflation, Oxford Economics said.
Inflation rose 0.6 percent in June but is expected to stay low with COVID-19 hampering consumer demand, particularly with new claims for unemployment benefits still high.
The Labor Department reported nearly 1.42 million claims in the week ended July 18.