Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the First Quarter of 2020. The excerpt is posted here for the benefit of our blog subscribers.
US Comes to Grips with Coronavirus
The US economy grew at a 2.2% annualized rate in the fourth quarter of 2019 before the coronavirus outbreak hit the country. Estimates for first quarter GDP generally indicate a single digit percentage contraction. Looking ahead to the second quarter, it is possible we see year on year GDP declines in the 20% 30% range.
Jobless claims in the US skyrocketed to unprecedented levels as over 10 million people filed for unemployment benefits in the last two weeks of March. The beginning of April saw an additional 6.6 million jobless claims, bringing the thee week total to an astonishing 16.8 million, or 10% of the American workforce. The previous one week peak in jobless claims was 695,000 in October 1982.
Manufacturing activity fell less than expected in March but still signaled the sector is in contraction. New orders received by factories dropped to an 11 year low, supporting the view that the US is already in recession.
Government Vows “Whatever it Takes”
The Fed and Congress agreed to sweeping fiscal and monetary stimulus measures to alleviate the gargantuan economic burden caused by social distancing.
Congress passed the CARES Act, easily America’s largest
stimulus bill in history ($2.3T, with potentially more coming soon) that provides additional unemployment benefits, direct stimulus checks to qualifying individuals, forgivable loans to small businesses, and other forms of relief.
The Fed also quickly moved to stabilize financial markets. In just weeks, the Fed cut rates to near zero, implemented programs to purchase unprecedented amounts of bonds (some in the form of ETFs), and even began lending directly to businesses.
Fed Chair Jerome Powell said the Fed could inject almost unlimited relief into capital markets if the Treasury Department continues to provide a backstop for bad loans.