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April 18 2020 Market Update

By on Apr 18 in Economics, Finance, Financial advisors, Market Update, Worth sharing

What’s Next for the Economy?

In the four weeks through April 16, 22 million Americans filed for unemployment benefits, just shy of the total number of jobs added in the decade following the financial crisis – and dwarfing job losses in that period, which topped out at 8.7 million. With many gig workers not included in the headcount, the true employment devastation could be far higher.[1]

The question for many investors becomes: how can we come back from here?

The Situation as it Stands

 A Goldman Sachs forecast predicts the highest unemployment rate since World War II, with annualized economic growth falling 11 percent from this time last year, with a 35 percent drop from the first quarter. Expectations are that US unemployment could reach 15 percent.[2]

The global economic situation is clearly unprecedented.

Goldman Sachs expects the global economic hit to be about four times worse than the financial crisis.[3] One-half of the world has already asked the International Monetary Fund for bailout assistance. IMF Managing Director Kristalina Georgieva says, “This is an emergency like no other.”[4]

The IMF expects the global economy to contract by 3 percent this year with the potential for a recession that could match the Great Depression for total severity. Original forecasts predicted 3.3 percent global growth in 2020.[5] Global trade in merchandise is also expected to fall by somewhere between 13 to 32 percent in 2020, according to the World Trade Organization.[6] 

Second Half of the Year and Beyond

Federal guidelines for reopening parts of the economy recommend a three-stage approach that should begin once a downward-trend in cases is documented.

Based on the spread of the illness through the country, the White House anticipates that some states may begin a reopening process prior to the expiration of federal social distancing guidelines on May 1. Some 24 percent of US counties have, thus far, no reported cases of COVID-19.[7]

The state governments of California, Oregon, and Washington are expected to coordinate on a loosening of shelter-in-place restrictions. No target date has been announced as of yet.[8] 

With respect to a recovery, much depends on the course of the disease both in the US and around the world. Said Georgieva, “It’s the first time in the history of the IMF that epidemiologists are as important as macro economists for our projections.”[9]

The IMF says that the global economy could expand by 5.8 percent in 2021 – if the pandemic is contained and global caseloads start to fall. That said, even this jump would deliver lower economic growth than 2019 levels.[10] This would be a “partial recovery” according to IMF expectations.

As of March, Goldman Sachs estimated a third quarter rebound of 19 percent growth in the US, with a 6.2 percent fall in economic growth for the full year.[11] IMF forecasts from April project the 2020 decline in growth at 5.9 percent.[12]

Again, these numbers can shift over time as the implications of disease spread and the effectiveness of reopening policies is better understood. Further, the effectiveness of potential therapies or the introduction of a vaccine could also alter these projections.

Will this be Another Great Depression?

Surveys of economists indicate one common theme: while a recovery might start this year, it could take some time to get back to where we were prior to the pandemic.[13] But is it a Great Depression?

While the IMF offered that comparison in terms of the severity of the downturn, it’s important to remember some of the key differences.[14] The Great Depression started in the financial sector and took hold over a matter of years, while this is a severe external shock that has impacted the US and global economy in a matter of months.

However, some of the effects could be similar.

People may want to increase their savings and be more conservative with spending, and businesses could be reluctant to invest until uncertainty around future outbreaks lessen. With high budget deficits as a result of fiscal stimulus, there may be concerns about how to pay for all this down the line, as well as potential inflationary pressures.

Finally, the course of the disease remains an important factor. Hot spots may need to be addressed,[15] and a Harvard study suggests that some social distancing may be required all the way through 2022 in the absence of increased capacity for critical care patients, a treatment, or a vaccine.[16] How this all plays out in the developing world is also an open question.

In other words, this is clearly a different situation, and it could produce some scars – particularly if it persists over the course of the year. To that end, testing, treatment, and eventually a vaccine are likely to play an important role in speed and breadth of the recovery.

But while it may take time to get back to where we were, we do believe that there is a light at the end of this tunnel – and based on current analytics, we’re hoping that we’ll all start seeing it sometime this year.

As always, please don’t hesitate to reach out to discuss any of these topics. In the meantime, we’re wishing you a restful and healthy weekend!

JSF Financial


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[1] This section, source: https://www.cnbc.com/2020/04/16/us-only-417000-jobless-claims-away-from-losing-gains-since-2009.html

[2] https://www.cnbc.com/2020/04/14/goldman-downturn-will-be-four-times-worse-than-the-financial-crisis.html?recirc=taboolainternal

[3] https://www.cnbc.com/2020/04/14/goldman-downturn-will-be-four-times-worse-than-the-financial-crisis.html?recirc=taboolainternal

[4] https://www.cnbc.com/2020/04/15/half-of-the-world-has-asked-the-imf-for-a-bailout-chief-says.html?__twitter_impression=true&recirc=taboolainternal

[5] https://www.cnbc.com/2020/04/14/imf-global-economy-to-contract-by-3percent-due-to-coronavirus.html

[6] https://www.cnbc.com/2020/04/15/half-of-the-world-has-asked-the-imf-for-a-bailout-chief-says.html?__twitter_impression=true&recirc=taboolainternal

[7] https://www.bloomberg.com/news/articles/2020-04-16/trump-tells-governors-that-some-states-can-reopen-before-may-1?sref=c4RUGNV1

[8] https://www.newsweek.com/california-oregon-washington-announce-joint-plan-ease-social-distancing-restrictions-reopen-1497634

[9] https://www.cnbc.com/2020/04/15/half-of-the-world-has-asked-the-imf-for-a-bailout-chief-says.html?__twitter_impression=true&recirc=taboolainternal

[10] https://www.cnbc.com/2020/04/15/half-of-the-world-has-asked-the-imf-for-a-bailout-chief-says.html?__twitter_impression=true&recirc=taboolainternal

[11] https://www.cnbc.com/2020/03/31/coronavirus-update-goldman-sees-15percent-jobless-rate-followed-by-record-rebound.html

[12] https://www.cnbc.com/2020/04/14/imf-global-economy-to-contract-by-3percent-due-to-coronavirus.html

[13] This section: https://www.nbcnews.com/politics/donald-trump/trump-predicting-rapid-economic-recovery-experts-say-it-s-not-n1184496

[14] Next two paragraphs: https://www.nytimes.com/2020/04/14/us/politics/coronavirus-economy-recession-depression.html

[15] https://www.bbc.com/news/business-52305259 China represents a useful case study, as reinfection becomes an issue

[16] https://www.nbcnews.com/health/health-news/social-distancing-may-remain-place-until-2022-harvard-researchers-say-n1184396

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