Economy

Why the Q1 GDP Recession Report May Still Look Good

Jon C. Ogg

Investors have to know by now that, effectively, no economic numbers will look positive for quite some time. This Wednesday will bring the first preliminary look at U.S. gross domestic product (GDP) for the first quarter of 2020. While the number itself is projected to be negative, it will be nowhere close to as bad as what is expected for the second quarter and perhaps even the third in the COVID-19 recession.

The Wall Street Journal’s consensus economist estimate for first-quarter U.S. GDP is −3.5%. Bloomberg is calling for a drop of 4.0% for the first quarter, but it expects a 1.2% gain for the price index. The New York Fed’s Nowcast report, using actual reported data, has forecasts of just −0.4% for the first quarter of 2020 and −7.8% for the second quarter of 2020.

The GDPNow report from the Atlanta Federal Reserve is looking at a mere 0.3% drop, based on the last update from April 24. The Atlanta Fed does specify that its GDPNow figures do not capture the impact of COVID-19 beyond its effect on GDP source data and already-released relevant economic reports. It also does not anticipate the impact of COVID-19 on economic reports that have yet to be reported beyond the standard internal dynamics of the model.

Those estimates compare to the prior GDP growth rate of 2.1%, and note that there have been only three negative individual quarters of GDP growth in the past decade, since the end of the Great Recession. With consumer spending representing some 70% or so of GDP, strength in household goods and items that benefit from the stay-at-home and work-from-home economy are just unlikely to overcome the damage caused by entire factories being closed, apparel retailers effectively shuttered, along with all nonessential services being closed. Auto sales fell, and Boeing is selling very few planes at this time.

On top of most of America working from home and being stuck there for the bulk of March, the price of oil cratered toward the end of the month and kept falling in April. That will weigh on the GDP reports ahead, as the weighted dollar values used for these reports will be far less from production, shipments, gasoline sales and anything tied to planes, automobiles and other transportation.

Again, this report is expected to be negative, but it is also expected to be nowhere close to as negative as the reports coming in the second quarter of 2020 when a full calendar quarter can be measured under the COVID-19 impact. Some economic reports still showed pockets of growth until well into March. That won’t be the case for the upcoming economic reports for April, May and June.