There are only so many ways to spin old data in a rapidly evolving #COVID19 environment.
The economy grew an upwardly revised 7.5% (⬆️0.1ppt) or, 33.4% annualized (⬆️0.3ppt) in Q3 – recouping 2/3 of Covid output loss.
Still, remained 3.4% smaller than end 2019
The strong Q3 #GDP performance gives a false impression of the economy’s true health.
Much of Q3 gain came from carry-over effects from fast progress in May-July while real GDP remained down 2.9% y/y in Q3.
With most of Q4 in the books, we expect ongoing but much slower #GDP growth around 1.5% (or, 5.5% annualized) in the final quarter of the year.
Still, that will also reflect much stronger entering Q4 than the current underlying pace of activity
On the eve of 2021, the economy carries very little momentum as a catastrophic third #COVID19 wave is limiting mobility, curbing employment & constraining demand.
> We should be prepared for very weak economic readings in December
The $900bn #COVID19 relief package is months late & will likely fall short of what is needed to prevent a rough winter, but it’s better than nothing.
It'll help partially buffer the current economic slowdown & provide + economic dynamism during the initial #vaccine rollout phase
As we gaze into 2021, the outlook will be one of contrasts.
The economy will start the year gingerly, and it’ll be prone to hiccups during the delicate vaccine diffusion phase.
Vaccinations began Dec.14 :
So far, 614,117 doses have been administered, according to nationwide tally from @CDCgov.
As we approach Phase 3 of the recovery, the cocktail of increased government transfers & broad-based vaccinations should support gradually firming activity culminating in a mini-summer boom
Still, the outlook will be one of contrasts
Much of the fiscal aid for the $900bn #COVID19 relief will expire before full recovery:
- renters eviction protection Jan 31
- PUA, PUEC unemployment benefits March 14 phase out
- FPUC ($300/week UI top-up) March 14
- PPP through March
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- NEW qualitative outcome-based forward guidance for QE program that links the horizon to max employment + price stability goals
- no change to composition or size of QE, but a floor of "at least" $120bn per month
The latest economic projections:
- Stronger near-term growth expectations
- Quite strong #GDP expectations for 2021
- Lower unemployment projections: below 4% in 2023
- #Inflation only a tad firmer: below 2% till 2023
- #Fed funds rate at zero through 2023
The #Fed's #GDP growth & #unemployment forecasts help explain why the Fed decided not to increase size or composition of QE.
They foresee rather strong growth in 2021 with a rapid decline in the unemployment. I wonder what their labor force participation rate assumptions are.
#Fed Beige Book:
👍Modest to moderate activity
👎Some regions slowing
👎Recovery incomplete
👎 Employment growth slowing (at best)
👎Labor supply issues
👍Outlooks remained positive
👎Optimism has waned
👎 Concerns: #Covid fear, lockdowns, fiscal policy cliffs
👍Modest inflation
Initial signs of financial sector stress and expectations of rising delinquencies:
"...deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors. An increase in delinquencies in 2021 is more widely anticipated..."
"...more school & plant closings, & renewed fears of
infection, which have further aggravated labor supply problems, including absenteeism & attrition
Providing for childcare & virtual schooling was widely cited as a significant & growing issue for the workforce, esp. for women"
The economy grew 7.4% (or, 33.1% annualized) in Q3 – recouping two thirds of the #Covid output loss – but it remains 3.5% smaller than at the end of 2019.
The strong #GDP performance gives a false impression of the economy’s true health.
Much of the Q3 gain came from carry-over effects from fast progress in May-July while real GDP remained down 2.9% y/y in Q3.
Comparing the Global Coronavirus Recession with the Global Financial Crisis is quite telling:
Despite the strong Q3 rebound, real 🇺🇸GDP is now where it was at the trough of the Great Recession.
(*I know Q4 2007 is the start of GFC, but doesn't change the levels much)
Mixed feeling from May #jobsreport: optimism, skepticism & anguish:
- Optimism as payrolls +2.5mn – largest increase on record.
- Skepticism as gain contrasts sharply w/ new unemployment benefit since April.
- Anguish as the cumulative 19.6mn job losses from GCR is 2* GFC
Encouraging 2.5mn job gains concentrated in:
- leisure and hospitality (+1.2mn)
> with food services & drinking place (+1.4mn) making up 1/2 total gains
- construction (+464k)
- health services (+312k)
- #retail trade (+368k)
- #manufacturing (+225k)
But, strains on government budgets & lock down effects were apparent with 585,000 government job losses mostly in local education employment (-310k)
Putting the #COVID19 shock in the context of US #recessions of the last 100 years
Our @OxfordEconomics baseline anticipates a gradual and uneven relaxation of social distancing measures through the summer such that #GDP and consumer spending are unlikely to return to their Q4 2019 level until mid-2021 – roughly 15-18 months after the initial #COVID19 shock.