Unprecedented [ uhn-pres-i-den-tid ]
without previous instance; never before known or experienced; unexampled or unparalleled
When analyzing financial statistics, it helps to compare to a previous period or historical average to gain some perspective. We do not have that luxury with the current crisis as the economic numbers are unprecedented in the modern period. Here are a few key statics over the past eight weeks:
– 33.4 million workers have filed for unemployment benefits
– The unemployment rate has risen from 3.5% to 14.7%
– -4.8% GDP for the first quarter (and this only includes one month of the lock down period)
– $2.8 trillion in fiscal support plus trillions more in monetary support
– Federal debt as a percentage of GDP expected to increase from 79% to 101%
These statistics are apocalyptic in scope, and there will be more daunting numbers to digest over the next couple of months as we begin to open the economy.
While all of the headline numbers have been unequivocally dreadful, there are a few items we can point to that give hope of a return to growth. The first has to do with the all-important jobless rate. Nearly 80% of job losses in the crisis have been classified as temporary, meaning that workers remain attached to their previous employer. To give some context, this statistic averaged 11% during the last recession, meaning that most job losses were considered permanent. The second indicator is that both the credit and equity markets have become less volatile since government stimulus efforts began. Markets are, in part, a voting machine for future economic performance, and they are mostly indicating confidence in a recovery. The last argument is that, historically, the shorter a recession, the quicker the economy recovers. Assuming re-opening efforts continue on their current trajectory, the worst may be behind us after the 2nd quarter.
Bottom Line: Recent statistics have been demonstrably bad and represent real economic pain. The markets are currently betting on recovery, and that temporary government support will be critical as the economy re-opens. There will be significant challenges ahead, including company bankruptcies, concerns over the efficacy of globalization, and changes to consumer behaviors in a post-pandemic environment. The US has the most dynamic economy the world has ever known, and, as always, we will ultimately rise to the occasion.