Economic Outlook – May 2020

May 19, 2020 Economic Outlook

  1. The COVID-19 pandemic is taking its toll on GDP growth. First quarter GDP contracted at a 4.8% rate, the worst reading since 2008. We expect economic deceleration with second quarter GDP contracting at a 30% annualized rate. While some states have begun to reopen their economies, it is difficult to predict the rate at which consumers will resume spending, how social distancing will affect the economy over the summer months and how small businesses will be able to handle the effects of the virus.

  2. The Federal Reserve continues to take aggressive action to support the economy. Over the past two months, the central bank has cut the Federal Funds rate to 0%, pledged to pump more than $4 trillion into the financial system, relaxed banking rules and expanded lending programs to large and small businesses. As part of the emergency measures, the Fed will begin buying corporate bonds through Exchange Traded Funds (ETFs) starting this month. Continued support from the Fed will be necessary to keep the economy afloat as businesses struggle through this environment.

  3. After passing the $2 trillion CARES Act in March with unanimous support in the Senate, Congress is looking to provide more fiscal stimulus and relief to unemployed workers and struggling businesses. Congress supplemented the CARES act in April, to provide more loans to small businesses. However, at this time, Congress is still working on a bipartisan bill that will provide further stimulus.

  4. The forced closure of many businesses and mandatory social distancing measures continue to take a toll on the labor market. April’s unemployment is expected to show the largest one-month increase in history, with 22 million jobs lost and an unemployment rate of 16%. Additional unemployment benefits from the CARES act have helped the unemployed, but an improvement in the labor market will be necessary to stem a deeper recession.

Sources: Bloomberg LLC, FACTSETU.S. Department of Labor

Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.

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