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Jul 30 2020

Bad Economy?

In the rush to a ‘new normal’ Gaslighters are trying to convince us 11%+ Unemployment is acceptable.

How about ‘worst economy ever’?

One Third just vaporized (annualized to be sure which is sloppy methodology, year over year is better).

U.S. economy contracted at fastest quarterly rate on record from April to June as coronavirus walloped workers, businesses
By Rachel Siegel and Andrew Van Dam, Washington Post
July 30, 2020

The U.S. economy shrank 9.5 percent from April through June, the largest quarterly decline since the government began publishing data 70 years ago, and the latest, sobering reflection of the pandemic’s economic devastation.

The second quarter report on gross domestic product covers some of the economy’s worst weeks in living memory, when commercial activity ground to a halt, millions of Americans lost their jobs and the nation went into lockdown. Yet economists say the data should also serve as a cautionary tale for what is at stake if the recovery slips away, especially as rising coronavirus cases in some states have forced businesses to close once again.

On Thursday, the government also reported that jobless claims increased once again last week to 1.4 million, another sign any recovery is stalling out.

Let’s pause and reflect that this is the second straight week of Job loss increase and over 1 Million Net Jobs lost per Week every week since mid-March for a total substantially North of 35 Million.

GDP shrank at an annual rate of 32.9 percent, according to the Bureau of Economic Analysis, the agency that publishes the statistics on quarterly economic activity. While it usually stresses the annualized rate, that figure is less useful this quarter because the economy is unlikely to experience another collapse like it did in the second quarter.

Still, while a tailspin at the second quarter rate is unlikely, the nascent recovery that began appearing earlier this summer appears to be in jeopardy.

On Wednesday, Federal Reserve Chair Jerome H. Powell warned that the most recent surge in infections has begun to weigh on the economy, while reemphasizing a recovery cannot be sustained unless the virus is under control.

“We’re still digging out of a hole, a really deep hole,” said Ben Herzon, executive director of IHS Markit. “The second quarter figure will just tell us the size of the hole we’re digging out of, and it’s a big one.”

Thursday’s report offered another economic snapshot of people staying home, cutting back their spending and overhauling their normal routines. The second quarter saw stark drops in sales of clothing, footwear and gasoline, along with food service, health care and transportation services.

This was the worst quarter since at least 1875, according to a historical data set created by economists Nathan Balke and Robert Gordon. The runners up are the third quarter of 1893, when a legendary panic and run on the banks caused a crippling depression, and the fourth quarter of 1937, when the Great Depression returned with a vengeance. Those quarters saw declines of 8.4 percent and 7.2 percent, respectively.

Until now, no quarter in the modern era of GDP measurement, which began in 1947, had seen a decline of even 3 percent. The worst was — 2.6 percent in 1958, amid a depression that coincided with a devastating pandemic known as the “Asian flu.”

Jobless claims rose for the second week in a row, adding to worries about how vulnerable much of the workforce remains as enhanced unemployment benefits are due to expire.

Markets felt the shock of Thursday’s GDP figures. By late morning, the Dow Jones Industrial Average was roughly 460 points in the red, or 1.7 percent. The Standard & Poor’s 500 index and the Nasdaq composite dropped 1.3 percent and 0.8 percent, respectively.

The GDP figures show how severely the economy suffered and could “jolt Congress into action” heading into August, said Wendy Edelberg, director of the Hamilton Project and a senior fellow in economic studies at the Brookings Institution.

“One thing that policymakers, and all of us readers of this report, can take from it is that this is the outcome we want to avoid,” Edelberg said. “We want to avoid having to go through such a dramatic shutdown again, because this is the pain that it causes.”

For all the talk of a V, W or U-shaped recovery, Sung Won Sohn, professor of finance and economics at Loyola Marymount University and president SS Economics, said a “Y-shaped,” or “sideways” expansion is in progress.

“The pandemic has created winners (top portion of Y sideways) and losers (bottom portion of Y sideways) widening the economic cleavage in the economy,” Sohn wrote in an analyst note Thursday morning.

The economy collapsed in April on the heels of a nationwide shutdown. That month, the unemployment rate spiked to the highest level since the Great Depression. April retail sales plunged 16.4 percent, the largest drop on record.

The economy added a record number of jobs in June, as the workforce recovered about 1 in 3 of the jobs lost during the crisis. But measurements for June’s report were taken when the wave of coronavirus cases was at a low ebb in the United States — 35 states set new infection records in July alone.

There are new signs the economic recovery is faltering, and Powell, the nation’s top economist, has noted that rising coronavirus cases are beginning to weigh on the economy. On Wednesday, Powell said some measures of consumer spending, based on debit card and credit card use, have moved down in the past month. Hotel occupancy rates have flattened out, he said, and Americans are not going to restaurants, gas stations and beauty salons as much as they had been earlier in the summer.

“On balance, it looks like the data are pointing to a slowing in the pace of the recovery,” Powell said during a news conference Wednesday. “I want to stress it’s too early to say both how large that is and how sustained it will be.”

Beth Ann Bovino, chief U.S. economist at Standard & Poor’s Global Ratings Services, compared the massive GDP shock to the economy as akin to a “cardiac arrest.” But even such a sharp, deep shock was not felt by all Americans equally.

“If you sliced it all up equally, we’d all get a certain sliver,” Bovino said. “But that’s not how things work. There are a lot of people who are in much worse situations than others.”

The Commerce Department’s GDP data go through multiple revisions, even in normal times. Now the pandemic is only amplifying the uncertainty in the process. Constance Hunter, chief economist at KPMG, said later revisions will help clarify what happened with imports and exports, for example.

With so many questions hanging over the economy, rapid data on restaurant closures, foot traffic, even visits to doctors will help fill in the spotty picture of what is happening across the nation, Hunter said.

She said it is more helpful to think about economic activity during the pandemic in what she is dubbing “FOGO,” or a “fear of going out.” That gauge will be key to understanding when people feel comfortable easing back into their pre-pandemic routines. “And covid is going to drive the bus on that,” she said.