US Economic Outlook – a sharp turn into a recession

The US economy has entered the steepest recession on record going back to 1950. Any point estimates at this time carry a huge amount of uncertainty, but we expect economic activity to contract by around 25% annualized in 2Q20 (vs a prior record of a 10% drop in 1Q58), and foresee that real GDP will fall by 3.0% for the full year.

The coronavirus has spread much faster and further than we previously expected, and has shut down large parts of the economy. Widespread shelter-in-place orders are prevalent across significant parts of the country, instituted in just the last few weeks. The lock-downs are necessary to bend the epidemiological curve, yet the scale of the resultant economic disruption greatly depends on the progress and duration of these measures.

Key takeaways

  • The US economy has entered the steepest sharpest recession on record going back to 1950.
  • Uncertainty around the point forecasts and the longer-term implications is vast, but we now expect real GDP to contract by 3.0% for the full year.
  • We forecast the maximum disruption to activity in 2Q20, followed by a gradual roll-back and return to growth in 3Q20.
  • The jump in weekly initial unemployment claims for the week of March 20 was unprecedented, with 3.3 million claims filed, skyrocketing to a further 6.6 million for the following week.
  • The overall data flow will get exponentially worse from here and potentially hard to decipher.
  • Monetary policymakers have already employed a wide range of measures to stave off financial collapse.
  • Record fiscal measures will not be able to offset the sudden stop, but are expected to support an eventual recovery.


Economic Outlook A sharp turn into a recession