Saturday, 21 March 2020

A catastrophic GDP projection

Goldman Projects a 

Catastrophic GDP Decline 

Worse than Great Depression

20 March,2020
Goldman projects a 6% decline in GDP in the first quarter followed by a 24% decline in the second quarter.
Unprecedented Decline in Economic Activity
Key Points
  1. Goldman Sachs economists forecast a historically sharp and swift recession, with second-quarter GDP sinking a stunning 24% after a 6% decline in the first quarter.
  2. The economists had expected a decline of 5% in the second quarter, after a flat first quarter but they said social distancing measures have affected many sectors of the economy and will hit the first and second quarter hard.
  3. The economists still expect a spring back in the third quarter, of 12%, but they see unemployment peaking at 9%.
9% of the US Has Been Laid Off Due to the Coronavirus
I crunched the numbers based on those poll stats and come up with a U3 unemployment rate of 12% and a U6 rate of 39.7%. See the link for details and calculations.
Conclusion: Goldman is way too optimistic on the unemployment rate.
Other GDP Estimates

Some GDP forecasts I've seen recently, for Q2:
BofA: -12%
Morgan Stanley: -14%
Evercore: -20%
Goldman: -24%

167 people are talking about this
Delusional Forecast
Advice Ignored by Trump
Fast Rebound Fantrasies

I looked at some academic studies of GDP

A quarterly loss of -24% is worst than any quarter in the Great Depression or the Civil War. Worst quarter in American history.

Ditto payrolls, April losses could be in the millions

The rebound would be among the best all-time.

No way a rebound is that fast.

Car buying, travel, restaurants, etc. will not come close to returning to normal that fast after this kind of economic hit. The wealth impact alone will take years if ever, given boomer retirement needs. Real Estate? Saving replenishment?

See Mike "Mish" Shedlock's other Tweets
I do not get these fast rebound fantasies and neither does Jim Bianco. He retweeted a Goldman Sachs estimate which is not the same as endorsing it.

I do not know how deep this gets, but the rebond will not be quick, no matter what.
Share buybacks, outsourcing to China, earnings, and ludicrous share prices based on forward PEs are all going to take a hit. Retired boomers will not be traveling as much as they thought. Countless small businesses will be wiped out.
Millennials still will not be able to afford houses. Consumers will need to rebuild savings cushions but there working hours will still be reduced. People will eat out less which will impact tips.
Many of those thinking of buying a new car will postpone that decision.

The Huge Fear: How Do I Pay the Bills?

Please note the Huge Fear: The Huge Fear: How Do I Pay the Bills?
That fear will linger a long, long time.
It is nearly crazy to project a fast rebound from this disaster.
This is not a 911 replay, nor is it anything the Fed or central banks can fix.
Mike "Mish" Shedlock

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