Goldman Sachs says disposable income will likely grow this year, even amid the widespread coronavirus shutdown

• Expect disposable personal income to grow in the US this year, Goldman Sachs said.
• Despite the economic despair caused by the coronavirus pandemic, with storefronts shut down across the country and jobless claims approaching 30 million in six weeks, Goldman Sachs said that a combination of factors are "likely to register slightly positive growth this year ..."
• According to Goldman's forecasts, "total disposable personal income will increase by 0.5% in 2020 relative to the pre-virus level, or $75 billion."
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Expect total disposable personal income to grow in the US this year, Goldman Sachs said in an analyst note published Monday morning and in another published April 29.

Over the past six weeks, 30 million Americans have filed for jobless claims and Goldman said it expects the unemployment rate to hit 15% as economic shutdowns roll across the country.

Goldman argued that while income losses are likely to be very large, the federal government has stepped in with a massive stimulus package to replace much of that lost income.

In the end, it all nets out to a total disposable personal income gain of 0.5%, or $75 billion, in 2020.

"Combining our forecasts of labor income, corporate dividends, proprietors' income, interest, rental income, and tax cuts and government payments to individuals, we project that total disposable personal income will increase by 0.5% in 2020 relative to the pre-virus level, or $75 billion," according to the April 29 note.

The investment bank said that income losses are hitting sectors such as hotels and restaurants the hardest, but reduced business-to-business spending from the shutdown has caused the virus shock to spill over to other sectors, creating more income losses downstream.

Those downstream sectors that get hit by reduced business spending can see a larger loss in income than waiters who saw their restaurant close.

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For example, a restaurant that closes might stop paying for legal services, which in turn leads to a decline in output and income for the law firm servicing that restaurant.

"Most waiters who lose their jobs will be made whole by unemployment insurance, but most lawyers who lose their jobs will not," Goldman explained.

In sum, Goldman forecast a 3.3% decline in worker income in 2020, with an 11.7 percentage-point hit from private income offset by an 8.4 point boost from unemployment benefits.

Much of Goldman's forecast for a jump in total disposable personal income in 2020 hinges on its assumption that Congress will approve another $550 billion in stimulus packages. That would bring the total fiscal support approved by Congress to more than $3 trillion, or 14.6% of gross domestic product, according to Goldman.

In fact, Goldman is expecting a lot from Congress:

"Congress will include state fiscal aid in the next round of fiscal measures. We also expect an extension of enhanced unemployment benefits ... "

It continued: "... we have penciled in another round of stimulus payments to individuals, though that prospects that Congress will enact another round are unclear. We also assume that Congress will enact further federal spending increases and increase infrastructure spending incrementally, though in both cases the spending would show up primarily in 2021."

Whether Congress is able to do what Goldman expects is anyone's guess.

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