All Posts Tagged: interest rates

Cabin Fever Hits Markets – Long Economic Winter Ahead

Scott Anderson
Chief Economist

Growing up in Minnesota, I am very familiar with the cabin fever that can result from long winters and being stuck at home for months on end.

Before long you’re climbing the walls with boredom and dreaming of the places you will go and the things you will do when the weather breaks.

The U.S. equity market rally at this point is feeling a lot like that these days.

The S&P 500 has jumped 26.8% in less than a month. Reports that the drug remdesivir could be speeding the recoveries of severe patients and official discussions of how we will reopen the economy again have gotten equity investors jazzed about better times just around the corner.

The drop in Treasury bond yields over the same period suggests bond investors have a very different view of our economic future – as do most economists. The reality is there is still a long economic winter ahead of us even if parts of our economy can start to reopen over the next couple of months.

Like a Category 5 hurricane that has hit the entire world. The ferocity, speed, and extent of the economic and financial damage of this pandemic is unparalleled in our lifetimes. Pandemic shocks also come in waves much like a hurricane’s unrelenting bands of rainfall and wind. There are times during a hurricane when winds and rains subside only to pick back up again. We may be living through one of those lulls with this virus right now.

Only when we discover a workable and proven vaccine and can administer it at a global scale will we be able to call an end to this health crisis and resulting economic and financial storm. It is wishful thinking that the damage will all just melt away like a bad dream once we are given the all-clear to go back to work.

The reality is that our forecasts for U.S. and global economic growth continue to be slashed as our models fail to keep up with the carnage the pandemic is reaping on the global economy. The annual IMF/World Bank meetings were held virtually this week and we largely agree with the sobering assessments offered by their economists. The global economy will see its biggest decline in economic activity since the Great Depression this year. Few people alive today have seen anything like it.

We see the global economy contracting 3.2% this year and further mark down our forecasts for economic growth for all major economic regions of the world, Europe, Japan, United States, and China. The bad news is we still might not be done slashing these forecasts.

Our baseline assumption is that more and more economies will begin to reopen in the second half of this year. If the virus re-intensifies and widespread shutdowns are re-imposed, global economic outcomes could still be far more dire and a hoped for economic rebound in 2021 may never materialize.

The most visible sign of the carnage the virus is reaping on the U.S. economy are the weekly jobless claim figures. The U.S. economy is hemorrhaging jobs at a pace and scale never before recorded. It compares to a natural disaster on a national scale. With 22 million initial jobless claims in the U.S. over the past month, the U.S. unemployment rate is probably already over 17.0%. With another 4.4 million initial claims forecasted for next week, the U.S. unemployment rate will likely be well over 19.0%.

Before this recession ends, we think the U.S. unemployment rate will hit 23.0% with approximately 30 million jobs lost. These are Great Depression levels of labor market dislocation in a month or two that took three years to unfold during the Great Depression.

Bottom-line, it will probably take years for the unemployment rate to return to more normal levels and for real GDP in this country to reclaim its pre-virus peak, even if economic activity returns in the second half of this year. It’s a long economic winter ahead.

To find out more, check out this week’s U.S. Outlook report.

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Treasury Yields Crash – Ignoring Strong Jobs Report

Scott Anderson
Chief Economist

The coronavirus itself is a serious threat to both U.S. and global economic expansion.

It is both a supply and demand shock to global growth as producers face supply-chain disruptions and service and retail businesses see a sharp drop in consumer demand as more and more people self-isolate to protect themselves from the rapidly spreading infection. But the virus and the global economic shock it is creating are also starting to touch off financial market contagion and volatility, the likes of which we haven’t seen since the global financial crisis of 2007 and 2008.

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U.S. Outlook: Will Conventional Wisdom Hold? Next Week is Pivotal

Scott Anderson
Chief Economist
A woman posting a help wanted sign.

Conventional wisdom on the strength and resilience of the U.S. expansion will be tested next week. Is the economy really headed for a soft landing?

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U.S. Outlook: Expect Another Fed Rate Cut

Scott Anderson
Chief Economist

The need for another quarter-point Federal Reserve interest rate cut at the end of October continues to increase. In fact, more cuts will likely be needed in the months ahead to stem the tide of slower U.S. and global economic growth.

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U.S. Outlook: Are Consumers About to Feel a Squeeze?

Scott Anderson
Chief Economist

We think it’s about to get harder for consumers in the quarters ahead. For now, they actually still feel pretty good about their current job and financial situation.

Consumer sentiment just hit a three month high in October, according to the University of Michigan Survey. Indeed, U.S. households still have a lot going for them. The U.S. unemployment rate just hit a 50-year low.

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