Economist on macro environment: ‘Not going to be easy’

Economist on macro environment: ‘Not going to be easy’
  • U.S. second quarter GDP contracted more than 30%, data showed on Thursday.
  • Employment momentum may have stalled after smashing expectations.
  • One expert doesn't expect to see a return to full employment before 2023 or 2024.

Expectations for a ‘V-shaped’ recovery may now be off the table after U.S. GDP collapsed by 32.9% in the second quarter, according to several analysts and experts.

Loss of momentum

The U.S. and global economy came to a screeching halt in March as the COVID-19 pandemic spread worldwide and few if any countries were spared. Once May and June came along the likelihood of a ‘V-shaped’ recovery seemed more likely after job data smashed expectations.

The U.S economy added 2.5 million jobs in May, obliterating estimates for a loss of 7.5 million jobs. The June beat was smaller but still impressive as the U.S. economy added 4.8 million jobs versus expectations of 3 million.

But days away from August, the momentum has stalled, according to RSM Chief Economist Joseph Brusuelas. According to CNBC, he said the “premature opening of the economy is beginning to rear its ugly head.”

He added that the economy started to “move sideways” over the past six weeks and is “beginning to look as if it’s stalling out.”

From strength to weakness

Goldman Sachs’ Current Activity Index, a broad macro compilation of multiple metrics, was trending in positive territory of 0.5% in June but dipped to negative 3.8% in July. The research firm said in a note, according to CNBC, the “path of the virus remains the dominant driver of the near-term growth outlook.”

Unfortunately, the latest COVID-19 updates remain discouraging. The U.S. reported 65,935 new cases on Wednesday and the death toll exceeded 150,000 after 1,417 people passed away.

The Federal Reserve seems to be signaling a similar stance. Fed Chairman Jerome Powell said this week the economy is very much “seeing a slowdown in the rate of growth.” He added that momentum seems to be “short-lived” and “we will not know” what’s next for the economy until more data starts to come in.

Full employment not before 2023

Current expectations call for July’s employment data to show the addition of 2 million jobs. This marks another sign of deceleration in economic momentum and if trends continue it will take years before a full employment recovery will be seen.

According to CNBC, Moody’s Analytics Chief Economist Mark Zandi said the economy only recovered half of what was lost in the second quarter in the third quarter. Moving forward, “it’s going to be a slog until the pandemic is over.”

As such, expectations for a return to full employment prior to 2023 or even 2024 appear unrealistic.

“This is not going to be easy,” he said.

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