By: Alex Carrick on March 26th, 2020
The Economy Under COVID-19: Notes From the Trenches - March 26, 2020
- A double-digit percentage decline in Q2 GDP, a huge jump in unemployment insurance claims and a $2 trillion stimulus package—numbers such as these are going to play havoc with multi-equation econometric models going forward.
- There’s much commentary in the media that the economy will quickly bounce back due to the pent-up demand that is accumulating. While it’s true that on the other side of the slump there may be large percentage gains in GDP, they will arise mainly from a low denominator in the calculation (i.e., a low base from which to grow.) Yes, people will rejoice in being able to return to the theater and go out for a meal. Previous recessions have shown, however, that with so many people losing their jobs, a great deal of paying down debt and attempts to build or rebuild nest eggs will be taking precedence over consumer spending (70% of GDP).
- Longer term, the stimulus package will be inflationary. Tariffs are inflationary. It’s time to abandon, for a long while, any further talk of taking aggressive action on the foreign trade front. A likely pandemic-inspired move towards deglobalization of supply chains will do the trick on its own.
- If you’re wondering about possible backlash against aspects of the stimulus package, you might want to check out ‘#notdyingforWallStreet’ on social media.