Unprecedented Decline in Economic Activity
Please note Goldman sees Unprecedented Stop in Economic Activity, with 2nd Quarter GDP Contracting 24%.
https://twitter.com/zachdcarter/status/1241138516492500993
Key Points
- Goldman Sachs economists forecast a historically sharp and swift recession, with second-quarter GDP sinking a stunning 24% after a 6% decline in the first quarter.
- The economists had expected a decline of 5% in the second quarter, after a flat first quarter but they said social distancing measures have affected many sectors of the economy and will hit the first and second quarter hard.
- The economists still expect a spring back in the third quarter of 12%, but they see unemployment peaking at 9%.
9% of the US Has Been Laid Off Due to the Coronavirus
A SurveyUSA poll shows 9% of the US Has Been Laid Off Due to the Coronavirus
I crunched the numbers based on those poll stats and come up with a U3 unemployment rate of 12% and a U6 rate of 39.7%. See the link for details and calculations.
Conclusion: Goldman is way too optimistic on the unemployment rate.
Other GDP Estimates
Delusional Forecast
Advice Ignored by Trump
Fast Rebound Fantasies
I do not get these fast rebound fantasies and neither does Jim Bianco. He retweeted a Goldman Sachs estimate which is not the same as endorsing it.
I do not know how deep this gets, but the rebound will not be quick, no matter what.
Share buybacks, outsourcing to China, earnings, and ludicrous share prices based on forward PEs are all going to take a hit. Retired boomers will not be traveling as much as they thought. Countless small businesses will be wiped out.
Millennials still will not be able to afford houses. Consumers will need to rebuild savings cushions but their working hours will still be reduced. People will eat out less which will impact tips.
Many of those thinking of buying a new car will postpone that decision.
The Huge Fear: How Do I Pay the Bills?
Please note the Huge Fear: The Huge Fear: How Do I Pay the Bills?
That fear will linger a long, long time.
It is nearly crazy to project a fast rebound from this disaster.
This is not a 911 replay, nor is it anything the Fed or central banks can fix.
Mike “Mish” Shedlock
“Goldman Projects a Catastrophic GDP Decline Worse than Great Depression”
Well, largely shut down the economy, that is what one should expect.
To quote Karl Denninger, “You’re burning the village to save it.” Is it worth it to do that? What are the unintended consequences?
Without extensive testing there will be no end date to restrictions.
In the current medical situation–there are insufficient tests, results take too long, there are insufficient test products in the pipeline and the lung scans of victims have very characteristic appearances.
Of course it is too late for testing those who have it critically now. If they can’t breathe, there is no-one saying wait for testing.
The only way forward is to somehow determine the progress of the epidemic. It is clear that there is nowhere to draw a fire-wall in the USA. It’s here, it’s infecting more and more people every minute. But without wide-spread testing, you will remain too long in the duck-and-cover position.
This is so obviously true. Thank you. Testing, testing, testing, …
Per the Chinese Red Cross, based on experience from Wuhan, lockdowns will have to be substantially tighter than they now are even in hard hit Italy, to be effective:
They also suggest there will be a month delay between complete lockdown, and peak of infections….
What SPECIFIC things do you think Trump should do?
Stop his asinine trade war – which by the way restricts medical products as well
Use the tests developed elsewhere instead of insisting on made-in-USA label where there is still a shortage
Show a little humility instead of bragging about how fantastic his handling has been. He rated government response as perfect
Stop calling this the China virus inflaming global tensions
Apologize for his asinine comment about 15 cases soon headed to zero
Put partisan politics aside for once even if the democrats won’t
Allow medical supplies to go to Iran. Instead this mother F*er actually tightened sanctions on Iran in the midst of a humanitarian crisis
I am sure I can come up with more but that is a reasonable start
Same here, except for #4, point for point. Esp about Iran. Have a little compassion! (too much to expect for politicians)
Facts for@JimMcHale
The fact is : I voted for Trump
The fact is : I praised his supreme court picks
The fact is : Trump is an economic illiterate who does not understand trade
The fact is: Trump is an enormous narcissist in love with himself despite amazingly little talent
The fact is: I did comment on the trajectory of the coronavirus from the beginning, long before all but an exceptionally tiny number of people
The fact is: I was not listened to
The fact is: you are the one with TDS if you choose to praise Trump’s moronic handling of the coronavirus
Its not as easy as a mic check: testing, testing, 1, 2, 3.
In fact, it appears to be both impractical and unhelpful:
“In strategic shift, doctors in America’s two largest cities are told to skip some coronavirus testing”
“The recommendation reflects a ‘shifting from a strategy of case containment to slowing disease transmission and averting excess morbidity and mortality,’ according to the statement.”
Quotes from CNN LiveUpdate
This is what is needed to restart the economy….
testing, testing, testing…
that’s it.
Tests to see if you’ve had it (ok to resume normal activity)
Tests to see if you currently have it (stay isolated)
Tests to see if you have not had it yet (be very cautious)
What else can you do?
You can get it a second time.
Not sure of that yet….but that still would be determined by more testing.
Right now we’re flying blind.
Yes, and testing will discover that.
Can we buy shares in the testing firms? Seems like another wonderful GSE venture brought to you by Uncle Sam. And to keep it going long a strong they can leak viruses from government labs. Wow! What a growth industry, much like aerospace, healthcare, education and high finance.
So who are we going to war with to distract people from this? China, or Russia?
Not sure about “we”, but I wouldn’t put it past Xi to use the opportunity of a US down for the count, to annex Taiwan. And perhaps “rescue” other parts of China’s immediate sphere from the virus. The Chicoms may be good at containing virus outbreaks, but they are still communists.
We dont fight those that fight back. Come on….
I heard Those jerks in Tajikistan hate our freedoms.
So tragically true.
Seems like Russia is what the media/Dems/spock alliance have been pushed. There will probably be a Russia-China coalition. Hopefully it won’t come to that. But given the idiots running the Deep State, I think you’re hosed.
The yield curve flattened yesterday.
A flattened curve is what I would expect if bonds allowed to act “normally”*.
*Parity funds facing margin calls have made bonds act irrationally.
Deleveraging nearly done? Especially with options expiry yesterday?
The damage already inflicted upon the economy by covid-19 has pulled a key support block out of the debt pyramid. We have crossed the tipping point with the destruction of small businesses by the government in the name of the “greater good.”
This signals the end of the “buy the dip” era. The saying, don’t try to catch a falling knife may prove to be far better advice than buying each time the market notches it’s way lower. More on this subject in the article below.
A cascade of delinquencies / defaults on deck.
Lawyers’ nirvana as many will try to get out from under contracts / leases / etc due to declared actions by local / state / federal governments.
“One question we must ask is, did the Fed create a new problem by pouring new stimulus into the financial system and rapidly cutting rates over the last few weeks?”
They are already starting to try to blow the next bubble. No one seems too concerned. A trillion here, a trillion there, whatever. Even as past mistakes seem to be blowing our way of life to smithereens, we are rushing to make the exact same mistakes, times ten. “That guy in detox looks miserable, oh god make it stop, give him more heroine!”
People have been trained for 10 years to “buy the dip.” In a bear market the exact opposite applies, “sell the pop.”
ANYONE who thinks there will be a V recovery is DELUSIONAL.
your definitely not losing your job if you are in the toilet paper business; there is never any on the shelves. 911 is getting calls for people stranded on the toilet without a roll. since this virus arrived it seems the national average rate if pooing has really increased.
It’s just clear you have no ideas and are only able to criticize after the fact. I didn’t say I liked or didn’t like Trump. But clearly you are a never Trumper with no original thoughts of your own. Enjoy your life.
Dear Leader smiles upon your loyalty.
“It’s just clear you have no ideas and are only able to criticize after the fact.”
Would you prefer that Mish criticized before the fact? Maybe something like: “Trump is about to do something really stupid!! Why would anyone do something so dumb!”
Actually, just the opposite. Mish was accused of being a fearmonger by many for saying that what is happening right now was likely to happen back in January. Mish isn’t being a Monday-Morning QB on this.
The fact is : I voted for Trump
The fact is : I praised his supreme court picks
The fact is : Trump is an economic illiterate who does not understand trade
The fact is: Trump is an enormous narcissist in love with himself despite amazingly little talent
The fact is: I did comment on the trajectory of the coronavirus from the beginning, long before all but an exceptionally tiny number of people
The fact is: I was not listened to
The fact is: you are the one with TDS if you choose to praise Trump’s moronic handling of the coronavirus
I just did a back of the envelope calculation, and even with the bounce back this forecast is not so positive. At the end of the year GDP will still be 12 % below 2019. If employment declines at the same rate, that’s about 15 million more unemployed. (Sorry couldn’t get columns to line up!)
q4 2019 20,000
q1 2020 18,800 -6%
q2 2000 14,288 -24%
q3 2000 16,003 12%
q4 2000 17,603 10%
Total Change -12%
Goldaman’s got the big short already in.
The effect of “STAY AT HOME” executive orders are going to show up in the unemployment application surge over the next week or two.
Can I still buy “rebond” to fix my shoes ? Is that essential activity?
If GDP loose 30 per cent in total in the first two quarters you need afterwards a total cumulative grow of 40 per cent to go get the GDP at a level even from where you started. So at end 2020, as per Goldman figures there is still a severe recession.
However stock markets have an idiotic herd mentality and are only motivated by positive growth whichever the level you start from.
“lose” it’s spelled that way
THE WAY I UNDERSTAND THESE GOLDMAN FIGURES.
The “rebond” of 12 per cent in third quarter is possible because they refer it to a GDP
base reduced by about 30 per cent after first and second quarter. It should mean that the quarter three GDP will still be after a 12 per cent, rebond 20 per cent lower than last 2019 quarter.
This is an article that everyone should be reading!
…………….
A fiasco in the making? As the coronavirus pandemic takes hold, we are making decisions without reliable data
By John P.A. Ioannidis
March 17, 2020
The current coronavirus disease, Covid-19, has been called a once-in-a-century pandemic. But it may also be a once-in-a-century evidence fiasco.
At a time when everyone needs better information, from disease modelers and governments to people quarantined or just social distancing, we lack reliable evidence on how many people have been infected with SARS-CoV-2 or who continue to become infected. Better information is needed to guide decisions and actions of monumental significance and to monitor their impact.
Draconian countermeasures have been adopted in many countries. If the pandemic dissipates — either on its own or because of these measures — short-term extreme social distancing and lockdowns may be bearable. How long, though, should measures like these be continued if the pandemic churns across the globe unabated? How can policymakers tell if they are doing more good than harm?
….
One can only hope that, much like in 1918, life will continue. Conversely, with lockdowns of months, if not years, life largely stops, short-term and long-term consequences are entirely unknown, and billions, not just millions, of lives may be eventually at stake.
If we decide to jump off the cliff, we need some data to inform us about the rationale of such an action and the chances of landing somewhere safe.
John P.A. Ioannidis is professor of medicine, of epidemiology and population health, of biomedical data science, and of statistics at Stanford University and co-director of Stanford’s Meta-Research Innovation Center.
About the Author
@METRICStanford
John P.A. Ioannidis
jioannid@stanford.edu
No data is reliable for more than an instant. You make decisions based on worst case risks to the system.
If that were true then everyone would be a prepper with a year’s worth of food, ammo and supplies and plenty of savings. Very few have even enough savings to last 2 weeks. That isn’t preparing for the worst case.
And realistically, preparing for the worst case isn’t often economically feasible, as we are seeing is true in this brouhaha. Lots of people are going to be bankrupted because health officials want to be ready for a worst case that is very unlikely to happen.
P.S. Did you actually read the article? [lol]
I wasnt referring to individuals. Systemic risk can only be managed by the government.
Thank you. So true.
The difference here is that the Spanish flu killed everybody that it was likely to kill, and the population that was left had immunity. With all of these measures to inhibit interaction, the people it would kill will stay alive and the general population won’t build up its immunity quickly enough. So I see this as a rolling thing, going away and coming back when people let up. It will be economically devastating for a long time.
I’m afraid that this and similar stories are being buried because people are afraid that they are wrong. THis posting was deleted over on Slate for these reasons, IMO.
TPTB are going to be doing some serious CYA when it is finally concluded that everyone over-reacted and deaths from COVID-19 turned out to be relatively small compared to the annual flu deaths.
Shame. It didn’t have to be like this. We had the option of robust testing like S Korea, or shutting down like Italy, and the Govt chose Italy. Wasted weeks of prep time hoping it would just go away on its own. Well, here we are. We’ll eventually get through this, but lots of pain ahead. Best of luck to all my fellow citizens.
And in that time since, we could have been ramping up our testing capabilities, but chose not too. Disappointing. Shameful. They chose this path.
Remember all those people that bought the big houses with 3% down payments and had to have all the granite counter tops and went into hock up to their eyeballs for the glitz? Well those are going to be the plagues in the neighborhood when the foreclosure sale fails to find buyers. They may become the next homeless shelter that isn’t sponsored by the gubberment.
Nah. There are a lot of people with cash on the sidelines waiting for deals. Just as in 2009. They tipped over their mattresses and bid on all the foreclosed houses, grabbing them at low prices and in so doing sent the housing market much higher a couple of years later.
Not exactly.
The housing inventory that should have been available was intentionally severely restricted and thereby prices artificially inflated, due to various “keep people in their homes” policies and the Fed purchasing 45 cities worth of MBS garbage. Had housing been allowed to revert back to a semblance of a free market, prices would be more affordable today and the present anger of the younger generations would be much less.
There are some people with cash on the sidelines and it’s gonna stay on the sidelines while prices drop… for a long, long time. Flippers/investors are not going to catch a falling knife. You are thinking of 2008. This is going to be way worse than the last one.
The “cash on the sidelines” hypothesis seems spurious, at least for regular people. That’s the whole point of really low interest rates and money printing, to force people to participate at all times. Why save when the money is guaranteed to be worth less in the future?
We’ll probably run a variation of TARP again, where the cash will be newly printed and handed to bankers and TBTF large corporations to scoop up assets and concentrate wealth even further.
The problem with the “quick bounce back” forecast is, it doesn’t take into account the bad state of the economy before the crisis. The Repo market was indicating an impending debt crisis back in September and the Fed was increasing its balance sheet to stave off the liquidity crunch. The “shutdown the economy” response to COVID-19 will cause massive shockwaves through the system. It is just the catalyst that will usher in the much more serious and severe “Greater Depression.”
The banks, funds & the media have to predict a near term recovery, it’s part of the “stock markets always go back up in the end theory”. Fees depend on it.
What many don’t consider is that if the market falls 50% from its highs it has to rally 100% to recover to the same level.
True, but only trivially true. It’s like the guy who bought a wood stove so efficient that it cut his wood consumption in half, and then concluded if he bought another stove he wouldn’t need any wood at all.
Will the Fed be able to save the world?
Dunno, but the FED has done a good job ruining the financial system….
Who are these idiots 12% in 3rd qtr lmao!!!!!!!!! They use a crystal ball that shows them this crap! Probably paid out the ass to boot.
I presume they mean 12% growth above the reduced 2nd quarter, which still puts it at 15% below 1st quarter
I think it straight up means that the quarter will see a growth rate of 12% per year (of course 1 quarter of 12% annual growth rate would be closer to 3% overall growth). Thus they are projecting a steep decline followed by a nice growth rate assuming the quarantines are lifted.
Some folks might find this entertaining: https://www.bnnbloomberg.ca/billionaire-jimmy-pattison-says-canada-not-in-a-recession-despite-covid-19-uncertainty-1.1409076
He basically runs a chain of high-end grocery stores. There was lots of panic buying over the past few weeks in Canada, but that’ll soon fade to a lot of people not patronizing his expensive stores at all.
Very fundamentally, the emergence of the sars-cov2 virus, increases the chances of other viruses, closely related but perhaps not closely enough to be affected by sars-cov2 immunity, emerging as well. Risk of echoes of this pandemic is not trivial.
And due to how far and wide humanity have carried this one, such echoes could emerge in other places than China. Perhaps places where early detection and a forceful response is less likely.
So the blind assumption that preferences, hence the economy catering to them, will quickly revert to its pre-sars-cov2 state, may be a bit premature.
Well were about to find out why our great grand parents saved everything and wasted nothing
True that! My grand parents, they even taught me to save bacon grease to use as cooking oil, butter substitute, flavoring agent….etc…
If we did not learn this in 2007/8 not sure we will this time around either.
Great article Mish. Why is no one else talking about this?
It’s still early. Too many think that shutting down the economy due to unreasonable fear is just some kind of shoulder shrug thing. They don’t realize the domino chain they tipped over when they decided to shut down business and badger people to hide in their homes.
Back then, didn’t have to deal with debt out the wazoo, and the Spanish flu was behind them. The population was more used to hardship, and the term snowflakes was still a century away.
The only downside: they didn’t have great scholars like Ben Bernanke.
Bernanke? Have you read his statements prior to the crash? His contributions to moral hazard?
Your sarc meter appears to be off, please make sure it’s drawing a charge before attempting to power it on again.
When I did not see Genius Paulson mentioned along with Scholar Bernanke, I had to wonder!
Plus we were a far more agrarian country then
At 9:14 p.m. on Friday, March 20th
Secretary Mnuchin said on Fox Business that they (Treasury Dept) wanted to make sure that Americans could get their money out of money markets…. He CLEARLY implied that there was a problem and they were trying to head it off……
WTF does that mean??????
It means there is stress on money markets as people move vast sums from money market funds to treasury funds. If there is one thing the Fed and Treasury should do, it is keep people’s bank accounts and money market accounts from freezing up.
I imagine Mnuchin meant that he sees the stress on money market accounts and the Treasury is going to do whatever it takes to keep them functioning. The Fed has also made it pretty clear they will create however much money the Treasury needs to get through this. I believe they will succeed in that effort. Since the Fed has reinstated its own separate commercial paper facility, that will provide a place where corporate paper can be rolled over if the normal money markets cannot do that right now.
The recent CARES act allows people to draw off of 401Ks with no penalty during the pandemic. There is going to be a rush out the door of the markets with that.
The longer Trump doesnt act the more it looks like he is hoping this goes on until election day. Oddly the pandemic lead on the NSC and her group was disbanded after testifying the country wasnt prepared for a pandemic. Trump looks like he deliberately did this. The question is why.
What SPECIFIC things do you think Trump should do?
Never attribute to malice what can be explained by stupidity.
It all makes sense if you realize that Trump is a Russian agent following Putin’s orders to destroy this country. So far it’s going perfectly.
WE failed ladies and gentlemen. We’ve been electing these people for the last 50 years and all of them have contributed to the current state of affairs in one way or another. ALL OF THEM
Honestly don’t think that thinking about reality is his thing. He is all about reading and manipulating the emotional vibes of other people. That’s it, that’s all he is capable of. Unfortunately that gets you a long way in a dishonest culture.
If you think back to January when supposedly Trump should have been acting, he was being impeached. That was probably pretty distracting. Overall, there’s been little difference between the government’s response to Covid19 and its response to H1N1. Both were too slow, disorganized, and incompetent. It’s just that Covid19 is a lot more dangerous.
Mish – we’ll be lucky if it’s not worse…..
God help us all…..
I tried to talk my dad moving his money out of 100% stocks and pay off the house and then put at least half of the rest in a money market anticipating a collapse.
He didn’t. He retires next week.
let’s hope he can stay retired.
that’s the real issue. it’s not today or tomorrow for many people. it’s what happens 20 years from now…
Sounds like he’s doing a Cool Hand Luke. Let’s see how it works out. He can always start over.
Start over at 65. Genius.
Reincarnation?
Meant that for plashadpobedy
That’s sad, sorry to hear that.