This week we got our first estimate of the impact of the COVID crisis on the U.S. Economy. As expected, we’re now in recession. But the real ugly data is still to come.
On Wednesday, the Commerce Department posted its estimate of first quarter economic growth for the U.S. The result? Economic activity contracted at a -4.8% (annualized) rate in the January through March period.
The downturn in the 1st quarter was the worst since the Great Recession of 2008-2009, surpassed only by the 4th quarter of 2008 which saw the economy contract by -8.4%.
These economic growth numbers, while bad, are only a taste of what’s to come for the 2nd quarter. Remember, governments only started to issue stay-at-home orders in mid to late March. As it looks today, these orders will have their full impact in April and most of May, a possibly into June.
Looking at the next few quarters, we see that economists are expecting growth in the second quarter to be close to -30.0% (!!) before rebounding in the third and fourth quarters.
To put those second quarter estimates into perspective, the 30% decline would be 3.5x worse than the worst quarter in the Great Recession and more akin to what the U.S. saw in the Great Depression!
But notice that estimates for the third and fourth quarters are for +15% and +10% growth, respectively. Those numbers would be among the best we’ve ever seen in our country’s history.
To be sure, the economic damage from the COVID crisis will leave a lasting mark on our country. It’s going to take years for the economy to fully recover from this.
The stock market is clearly “looking through” the second quarter economic numbers towards the recovery in the latter half of the year. We think stock performance from here will be guided by the outlook for 2021 and 2022. How fast will the recovery be?
Wondering how this affects your future finances? Schedule a call with Financial Design Studio, financial advisors in Deer Park, to discuss your portfolio today.