Morgan Stanley economists said the coronavirus will inflict a deeper recession on the U.S. than previously expected, including a record 30.1% drop in gross domestic product in the second quarter.12.8% unemployment and GDP dropping by 30%? That's Great Depression stuff, as US unemployment has never gotten above 10.8% since World War II, and since quarterly growth started to be measured in 1947, a 30% drop would be triple the largest drop in output.
Less than a week since forecasting a 4% contraction in April through June, the economists led by Ellen Zentner said they now anticipated a steeper drop and that unemployment will average 12.8% and consumption will fall 31% in the quarter.
“Economic activity has come to a near standstill in March,” the economists said in a report to clients on Sunday. “As social distancing measures increase in a greater number of areas and as financial conditions tighten further, the negative effects on near-term GDP growth become that much greater.”
The Morgan Stanley team predicts GDP will fall 2.4% in the current quarter, but will begin to recover in the third quarter. Overall, they project the U.S. economy to contract 2.3% on a fourth quarter to fourth quarter basis in 2020, taking full-year global growth down to just 0.3%.
I can't see that happening. I know the "TP Boom" will end in Q2 while a lot of entertainment options will remain shut down. But last I checked, medical expenses count toward GDP as well, and some bills will still have to be paid.
The other reason I am skeptical about real GDP dropping that low is because deflation will likely be in place full-on for Q2. Prices for crops and oil were dropping a bit before this crisis, but it is in freefall now, and that will be reflected in prices at the store and other outlets by June. Nominal GDP might drop more than real GDP for the 1st half of 2020 (at least), much like it did in 2008-09 as the Great Recession hit.
Unemployment? That'll definitely spike bigtime, especially as seasonal jobs don't happen. But 12.8%? I'd be stunned if that happened, but if it did, things will be VERY ugly in this country by the time the 4th of July rolls around. Particularly if any stimulus checks are being cut off by then.
I'm not that surprised by the unemployment numbers. No one has savings to buy things with. Our economy is very dependent on low wage service jobs. And who wants to work for corporations and billionaires who don't appreciate you enough to give you paid leave of any kind? The only people bringing home a paycheck are those who can work from home.
ReplyDeleteI appreciate your articles on the economy during these trying times. Hasn’t been a whole lot of fun looking at my 401(k) lately. And my 401(k) is relatively conservative due to my age. Everyone’s getting hit. No safe harbor anywhere. Stay safe.
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