April Update on COVID-19 Impact on Economy and Financial Markets

By April 29, 2020 Keel Point News
COVID-19 market impact update - Keel Point

by: Steven L. Skancke, Ph.D., Chief Economic Advisor at Keel Point and formerly White House and Treasury Department Staff Member

The short and long term effects of the Coronavirus pandemic on the US economy and financial markets are difficult to predict. Steven L. Skancke, Chief Economic Advisor at Keel Point, answers some of the frequently asked questions he is receiving this month.

April 2020 Update on COVID-19 Impact on Economy and Financial Markets

1. What is the impact of COVID-19 and containment measures on economic growth?

  • Just reported US 2020 first-quarter GDP growth estimate is down 4.8% at an annualized rate which is consistent with our prior estimate of down 1.5% over the prior quarter. Pre-crisis estimates were for 3% positive annualized first-quarter growth.
  • Current estimates for second-quarter growth is -11% which is down 40+% annualized.
  • Jobs lost during the five-week period (March 15-April 18) totaled 26 million compared to 21 million new jobs created in the 128-month economic recovery (2009-2020). Unemployment is expected to reach 20% compared to 10% in 2009 and 10.8% at the end of 81/82 recession.
  • First-quarter S&P 500 earnings are reporting at -15-20%

 

2. What is the impact of Coronavirus on the Financial Markets?

  • Financial markets continue to look past negative economic news and focus on business beyond the shut-down. News about therapeutics, vaccines and the reopening process are driving markets, right now is an upward direction.

 

3. What more can we expect from the White House, Congress, and Federal Reserve?

  • Fiscal and monetary stimulus programs so far are about $10 trillion in their combined potential effect –about 50% of the size of the US economy — which is not widely understood or appreciated.  Their principal goals are: marshaling resources to protect health and safety, preserving employment relationships and supporting displaced workers.
  • The White House and Congress have enacted significant support and stimulus measures, albeit with delay and implementation difficulties. Less than 50% of the support from the CARES acts has reached intended recipients.
  • The Federal Reserve has been pro-active and pre-emptive in providing its full support for credit markets to assure they are not obstacles to business continuity or recovery. They have 11 different emergency facilities and have committed to unlimited bond-buying and quantitative easing.
  • Questions about the effectiveness and consequences of Fed actions abound: no ability to affect the supply disruption, unable to reach consumers, treating symptoms instead of source, creating new moral hazard by socializing credit risk, increasing future inflation risks while achieving diminishing returns, etc.