US Economic Outlook - activity has begun a long slog back toward "normal"

With lockdowns slowly being relaxed, economic activity has begun a long slog toward "normal". For example, Google mobility statistics at the end of May show activity at "retail and recreation" locations down 25% from January levels, an improvement compared to the trough in early April when the series was 45% below January. Similarly, the Dallas Fed Mobility and Engagement Index shows a gradual uptick from the bottom in April, though at a pace that varies widely across the country. Such high frequency indicators remain key in tracking the speed and shape of the recovery. Meanwhile, lagged traditional macro data are beginning to confirm the depth of the unprecedented economic collapse in late March and April that was foreshadowed by the various mobility and lockdown indices over the past few months. Our baseline real GDP outlook remains unchanged, with a 6.4% forecasted contraction in 2020, and only a partial rebound of 4.2% next year. We expect economic activity to remain about 5% below its pre-COVID level until a vaccine is widely available.

Key takeaways:

  • Our forecast for a 6.4% real GDP contraction in 2020 is unchanged.
  • With lockdowns gradually relaxed, activity has begun a long slog back toward "normal".
  • Downside risks remain elevated, mainly from virus developments but also from the re-escalation of US-China tensions.
  • Reopening in the US is occurring earlier in the virus curve compared to many other developed countries, heightening the risk of new waves of infection.
  • Meanwhile, May's labor market trends point to some upside risk from a faster-than-expected return to work.
  • April consumer spending was severely hampered by lockdowns; an uptick in consumer confidence and vehicle sales in May provide evidence of a start in recovery.
  • Purchasing manager surveys indicate an improvement in activity in May from the April trough, though the indices still remain in contractionary territory.
  • In contrast to the previous recession, housing markets are likely to be among the less affected sectors this time.
  • The Federal Reserve's attention is soon expected to turn from firefighting mode toward supporting the budding economic recovery.



Economic Outlook US Economic Outlook -05 June 2020