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The economic snapback has been better than expected
When the U.S. economy closed in March, economic forecasters warned of an unusual drop in GDP as several industries stopped effectively. We recently learned that US GDP fell at an almost unbelievable rate of 32.9% in Q2.
However, most people who follow the economy have also long predicted that there would be a sharp snapback if the spread of the coronavirus came under control and companies were able to reopen. Their argument was that the economy was fundamentally in good shape during the crisis and that the suppression in activity could be largely reversed.
Five months later we learn that the snapback in activity – which started late in Q2 – has been much better than expected.
“Complementing the reading of large and broad-based beats that is evident in the earnings numbers, the message from the management’s commentary is that the speed and scope of demand for the Q2 comes as a surprise to most companies as well, ”Deutsche Bank’s Binky Chadha wrote in a note to customers on Thursday.
“Freeport-McMoRan said ‘this recovery came sooner and stronger than we and others had expected,’ while UPS ‘would slow demand’, but instead saw ‘just the opposite,'” he added.
The stock market has certainly taken note with the S&P 500 (^ GSPC) of the record high last week.
And this has not just been about big companies. Broad economic measures, such as the BLS’s monthly non-farm wage increases, allow job creation to be stronger than expected. And although Friday’s Friday sales report in July reflected some delay, it still showed growth despite recent flare-ups in COVID-19 infection rates.
“Overall, retail sales figures are encouraging, as they suggest the recovery has continued, even in the face of the resurgence in virus cases,” Capital Economics’ Michael Pearce said.
“The decline in additional Federal unemployment benefits at the end of July does indeed pose a downside risk to long-term spending, but with virus infection rates declining, high-frequency indicators rose in early August,” Pearce added.
permanent destruction of jobs and all the other consequences that come with it. “data-reactid =” 33 “> To be perfectly clear, not one of these is to say that everyone expects the economy to return fully to where it was soon COVID. With the suppression of the economy came an actual recession that came with the permanent closures of companies and the permanent destruction of jobs and all the other consequences that come with it.
If history is a manual, we should be prepared for many hiccups and policy errors along the way. This is always part of the process, and it will probably take a long time before everything is great again.
But so far, things have been better than expected.
@SamRo“data-reactid =” 36 “>Due to Sam Ro, editor-in-chief. Follow him around @SamRo
What to see today
8:30 am ET: Empire Manufacturing, August (15.0 expected, 17.2 in July)
10:00 AM ET: NAHB housing market industry, August (74 expected, 72 in July)
4:00 pm ET: Net long-term TIC flows, June ($ 127.0 billion in May)
4:00 pm ET: Total net TIC streams, June (- $ 4.5 billion in May)
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