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

By May 14, 2020 Keel Point News
COVID-19 impact on US Economy May 2020

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.

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

#1 – Impact of COVID-19 and containment measures on economic growth?

  • Fed Chairman Powell changes tone:
    • Risk of prolonged recession and weak recovery that leaves lasting damage.
    • Deep job and economic losses.
    • Significant downside risks.
    • Need for more fiscal stimulus.
  • New jobless claims last week were 3 million bringing the 8-week total to 36 million.
  • Continuing insured unemployment reporting indicates 15% of the workforce is unemployed. (This compares to Unemployment at 10% in 2009 and 10.8% at the end of 81/82 recession.)
  • New York Fed weekly economic indicators estimate 2020-Q2 growth is -12% (down 48%annualized).
  • High-frequency data are showing a good news as re-opening parts of the economy continues.
  • Small Business Optimism is up and 78% of unemployed expect to be re-hired in next 6 months.

#2- What About Financial Markets?

  • Stock markets are down 6% so far this week, reflecting angst expressed by Fed Chair after a remarkable April and early May 30+% rebound from March 23.
  • Tensions between White House health and economic advisors overshadow good news about therapeutics, vaccines and the reopening process.

#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.
  • Fed Chair Powell reiterates (May 13) Fed will do whatever it takes to mitigate the economic downturn and support the recovery, with its emergency facilities, bond buying and quantitative easing.
  • House Speaker Pelosi unveils $3 trillion fiscal stimulus proposal providing support for:
    • $875 billion for state and local governments
    • $175 billion for testing and health
    • $75 billion for housing assistance
    • $40 billion for relief for tribes and territories
    • $25 billion for US Postal Service o $10 billion for small businesses
    • $ 6 billion for broadband homework issues
    • $ 4 billion for election security & preparation
    • Increase Federal payments to states for Medicaid, Medicare and Obamacare
    • Federal support for state retirement and medical insurance
    • Federal support for labor union pension plans
    • Extend the $600 per week Federal Unemployment supplement through January 2021
    • Federal assistance to agriculture producers
    • Second round of $1,200 individual payments
  • White House and Senate have not provided alternative proposals as yet.