COVID-19 is an ongoing health crisis that has quickly precipitated into a full-blown economic crisis.
The complete bloody picture is slowly becoming clearer as more negative macro data was released over the weekend, signalling more pain ahead for the U.S. as it tries to curb the spread of the pandemic with more states imposing restrictions.
Unemployment climbed to 4.4% as new payrolls tumbled over the weekend by over 700k, far worse than the 100k consensus. Notably, this jobs report was taken in mid-March and that doesn’t include the 10 million Americans who have filed for unemployment benefits since.
The world’s largest economy is heading towards its deepest recession since WW2.
Chief U.S. economist at Morgan Stanley, Ellen Zentner, said that the US economy will contract at an annualised 38% in Q2. The country stands to lose 21 million jobs as a result, with unemployment peaking at 15.7%, levels not seen since the Great Depression.
“We expect the U.S. economic recovery will be more drawn out than previously anticipated, marked by a deep drop into recession and slower climb out,” Zentner wrote.
Corporate earnings forecasts have also taken a battering as Morgan Stanley predicted S&P 500 earnings would fall by nearly 29%. It took over 4 years after the GFC to get back to pre-levels, so don’t count on a fast bounce back.
Indeed, conditions are more favourable this time round due to the unprecedented fiscal and monetary stimulus of governments globally.
However, we are still in the midst of a demand shock that shows no signs of letting up anytime soon.