NYT/Yahoo
On Wednesday, the Bureau of Economic Analysis published a report estimating a 4.8% annualized drop in US gross domestic product (GDP; the value of all goods and services produced by an economy) in the first three months of 2020. Among the sectors contributing to the decline were transportation, recreation and food services & accommodations, and healthcare, which led the group. Apparently hospitals had limited protective equipment and only kept staff working on cases involving covid-19 and stopped performing [lucrative] elective procedures. Economists expect second quarter GDP to fall an additional 30-40% and unemployment to reach 20% by June.
In light of this, Fed Chairman Jerome Powell held a virtual press conference that same day, signaling that the central bank would remain accommodative through the duration of the pandemic until conditions stabilized. While not giving specifics, so far it has maintained near-zero interest rates, increased its asset purchasing, and created lending facilities that have helped provide liquidity to credit markets. He said he believes the chances are low that we’ll see a quick recovery and instead that we’ll see “considerable risks to the economic outlook over the medium term.” He also called on continued support on the fiscal policy front, as Congress mulls over another stimulus package consisting of additional spending and tax relief.
On Thursday the US labour department said more than 3.8 million Americans filed for unemployment benefits, bringing the six-week total since the start of the lockdowns to more than 30 million. To give some perspective on these figures, this represents 12.4% of the entire workforce. Additionally, the commerce department said that household spending fell 7.5% in March from the previous month as household incomes fell 2% during that same period. Economists expect a worse month-over-month decline in April of 10% given the extent of the lockdowns, worsening unemployment numbers and declining consumer confidence.
After a slew of companies released earnings earlier in the week, the S&P 500 appeared to begin waking up to reality, closing 2.8% on Friday, erasing its gains for the week. Amazingly, despite the ongoing pandemic, stocks closed April by registered their biggest monthly gain since 1987. Although Amazon beat revenue expectations for the first quarter, operating expenses jumped by almost a third compared to the same quarter last year, owing to the coronavirus pandemic. Another tech giant, Apple, showed growth in profits and revenues as well but opted to not issue guidance on the current quarter due to uncertainty surrounding covid-19.
On Saturday Berkshire Hathaway held its annual shareholder meeting, albeit virtually. In the past, Warren Buffett has taken advantage of economic downturns to make acquisitions of good companies at great prices, but now he’s admitted to not only not having made any acquisitions thus far, but has even sold stakes in the nation’s four major airlines, citing the high uncertainty in the business environment. He did maintain his usual long-term optimism for “the American magic that has always prevailed” but he stopped short of making any predictions as to when things will be getting better.
Upcoming Major Economic Reports:
Thursday - Jobless claims for week ending 5/2
Friday - Unemployment rate for April