The Week in Review: May 4, 2020
GDP Slams into a COVID-19 Wall
Last week, the U.S. Bureau of Economic Analysis (BEA) released the advance estimate on gross domestic product (GDP), the largest measure of the value of goods and services in the economy. In Q1, GDP declined at an annual pace of 4.8%, the largest drop since 2008. The January–March estimate is subject to a revision in late May and late June.
Not surprisingly, a 7.6% annualized decline in consumer spending (nearly 70% of GDP) led the way amid forced business closures and lockdowns.
Within consumer spending, services fell 10.2% and durable goods tumbled 16.1%, with falling auto sales playing a big role. Non-durable goods jumped 6.9%, as consumers stocked up on staples in March.
One category stood out, in my view.
Spending on health care shaved 2.25 percentage points from GDP, or nearly half of Q1’s decline. While some hospitals are seeing an influx of COVID-19 patients, many have had to postpone elective surgeries. Meanwhile, others are delaying routine dental, eye, and annual physicals, as clinics attend to emergencies.
As businesses gradually reopen, we would expect to see pent-up demand for various procedures. It’s one potential bright spot amid an otherwise uncertain economic outlook.
The April–June period will likely be worse. It’s still very early, but the Atlanta Fed’s GDPNow model, which incorporates economic reports as they are released, projects a drop in GDP of 16% (as of May 1). The Blue Chip Consensus forecast is currently running just under -30%.
In his press conference last week, Fed Chief Jerome Powell reiterated that the Fed stands ready to do everything it legally can do to support the economy and set the stage for an eventual economic recovery.
But he also acknowledged that April’s data will likely be worse than what we’ve seen so far, and he recognizes the limits of monetary policy. In particular, Powell said: “Direct support (such as the CARES Act) can make a critical difference, not just in helping families and businesses in a time of need, but also in limiting long-lasting damage to our economy.”
If you have any questions or concerns, feel free to reach out to me, Will, or Tyler.
Two for the Road
Netflix’s total energy consumption rose 84% last year to 451,000 megawatt-hours. That’s enough to power 40,000 American homes for a full year. —Variety, February 28, 2020
“We do not have to become heroes overnight. Just a step at a time, meeting each thing that comes up, seeing it is not as dreadful as it appears, discovering that we have the strength to stare it down.” —Eleanor Roosevelt
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