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GDP Now Q2 Estimate At -34.90 Percent, So What Now?

GDP Now Q2 Estimate At -34.90 Percent, So What Now?

Summary

  • The Atlanta Fed’s GDP Now is estimating a -34.9 percent Q2 GDP print, which is 3.5x the largest quarterly decline in the post-WWII economy
  • If realized, the 11.3 percent non annualized first-half GDP collapse in 2020 will approach the worse year of the Great Depression, when in 1932, the economy shrank 13.1 percent for the entire year  
  • We are not paying much attention to these numbers as they reflect an economy that has been closed for two months, which should experience a relatively sharp snapback in Q3, with unemployment most likely peaking this month
  • Nonetheless, the pandemic and economic lockdown will do long-term structural damage to the economy
  • The rapid growth of the monetary aggregates alleviates much of the deflationary forces in the economy in the short-term and we perceive inflation a much bigger risk over the medium-term
  • If the GDP Now estimate holds, and even if GDP prints a record annualized 27.6 percent number in Q3, real output will still be 7 percent below the Q4 2019 level with unemployment remaining close to low double digits
  • We suspect the recovery will come too late and not be enough to save President Trump and the Republicans though the White House will tout it as “the greatest economic recovery in the history of the world“
  • Investors and companies should plan for higher capital gains and corporate taxes
  • Check out the astonishing performance of our stock picker’s large-cap portfolio, which is trouncing the S&P500 this year

Since the COVID crisis hit America, many businesses are operating at limited capacity while others have ceased operations completely.  The unprecedented aggregate supply and demand shock to the U.S. economy has resulted in horrific economic data, including the 20.5 in nonfarm payroll jobs lost in April and the unemployment rates shooting up over 14 percent.

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