April 3, 2020
Given the government’s response to the corona virus, the economy has stopped dead in its tracks. It started to fall precipitously in March. However, January and February were very strong months for the economy. As a result, we expect Q1 GDP growth to be 1.0%. However,GDP growth in the second quarter should drop precipitously. Payroll employment fell 701 thousand in March. Because more than 10 million workers lost their jobs in the final two weeks of March we expect a further decline of 5.0 million workers in April. As a result, we now expect GDP to decline 20.0% in that quarter. Data from China suggest that the flu is now well under control in that country as the number of active cases in that country have dropped from a peak of 58,000 in mid-February to just 5,000, It started in late December in China. The country quarantined Wuhan in late January. And by mid-February the number of active cases began to drop. That is only a couple of weeks after stringent measures were imposed to stop the spread of the virus. Outside China the experience should be similar. Stringent measures to control the spread of the virus were imposed in mid-March. Our sense is that by mid-April we should begin to see evidence that the disease is coming under control. Furthermore, the first checks from the federal government’s $2.0 trillion stimulus package will be received by May. As a result, we expect the economy to begin to recover in the third and fourth quarter with GDP growth rates of 8.7% and 7.0%, respectively. That would leave us with a 1.0% decline in GDP for the year, followed by 5.3% growth in 2021 as the economy recovers some lost ground.