With so much news, data, indices, prices and all kinds of data to keep an eye on, sometimes I forget about the OG of them all-- GDP. Beyond the obvious fact, that it is down, what else is going on with it?
It has been about three weeks since the numbers for 2020 Q1 were released by the Bureau of Economic Analysis (BEA). Production contracted 4.8%. and this was driven by decreases in consumption and investment. While we cannot officially be put in recession zone yet (NBER needs two consecutive quarters of contraction), this will most certainly happen following the Q2 release. Get ready to see a new gray "recession" bars on GDP charts!
So how low can we go this quarter? The Fed Chairman Jerome Powell has a pretty dismal outlook for what the data release at the end of June will show. Possibly on the order of a 20-30% contraction. This is based on unemployment numbers (which are released more frequently) and also indicators like retail sales which plummeted in April. This number is particularly worrisome because the US is a consumption economy. Consumption makes up close to 70% of the GDP and retail sales are almost half of that.
Powell when asked about the need for a vaccine to treat the illness and put a stop to the coronavirus pandemic, stressed the importance of consumers to the economy. "For the economy to fully recover, people will have to be fully confident, and that may have to await the arrival of a vaccine," he said.Lastly, not to kick it GDP it is down....but...
Let's also think about what GDP might be not fully measure or just not be able to capture. That haircut you gave someone in your family? The cleaner air you may be breathing? All the free YouTube content you are enjoying? Or on a darker note- that loneliness or boredom people are experiencing?
