With the world and national count of affected coronavirus patients and deaths rising, along with news of shutdowns for entire countries and regions, economists and other analysts are busy clawing through the data in an attempt to offer informed opinions on how the U.S. economy will be affected. Frustratingly, the tragic outbreak is not the only disturbance affecting us. There are still trade wars, Middle East disturbances, and petroleum warfare between Russia and the Saudis ripping through markets.
For those trying to put all this into perspective, the big question has to do with whether we face a serious downturn (such as a 2020 recession) and, if so, just how severe it may be.
Anyone searching for hard data to insert into the models (or into the best economic minds) faces a daunting task. Key items on the national economy arrive with lags. For example, we receive monthly data on electricity production, industrial production, employment, and housing starts, but those looking for larger categories of data to use in determining GDP growth have to wait for months.
In spite of the challenges involved, two Federal Reserve banks (the Atlanta Fed and New York Fed) maintain a continuous readout on the current situation. But be forewarned: This means their forecasts change constantly as new data are fed into their computer models. As of March 6, the New York Fed’s Nowcast indicated that real GDP growth would register at 1.7% for 2020’s first quarter and 1.3% in the second quarter. On the same date, the Atlanta Fed’s GDPNow model forecast 3.1% growth in the first quarter. That means no recession, yet.
But these numbers can plummet if weak data suddenly appear.
Then, there are consensus forecasts based on the informed opinions of a large number of business and other forecasters. They attempt in various ways to make estimates for all the key variables needed to make a larger forecast. Again, these forecasts are evolving.
For example, as of March 6, the Atlanta Fed indicated that the Blue Chip Consensus forecast called for about 1.5% growth in the first quarter. But the Wall Street Journal’s March survey of 60 economists looked much weaker. When the estimates are averaged, this panel sees negative growth: -1.3% in the first quarter and -0.1% in the second quarter. That means the panel’s central tendency calls for a recession in 2020’s first half. They do expect to see a recovery in the year’s second half.
The high likelihood of a recession is supported by Pacific Investment Management Co. Global Chief Economic Adviser Joachim Fels, as well as former Treasury Secretary Larry Summers, who puts the odds of a U.S. recession at 80%. The March 6 Wells-Fargo forecast is brighter: It calls for 1.8% growth in the first quarter, zero growth in the second quarter, and 1.5% growth overall for 2020. On Thursday, J.P. Morgan economists joined the recession clarion call. They indicated that output would fall by an annual rate of 2% in 2020’s first quarter and 3% in the second quarter.
Identifying the coronavirus’s economic effects combined with other major economic disturbances requires accurate data, which is the same issue faced by all who seek to place dimensions on the coronavirus pandemic itself. Unfortunately, my survey shows that the most current data to arrive darkens the picture somewhat, instead of brightening it. At the moment, I expect we will see negative GDP growth in 2020’s first half (a recession) followed by weak growth in the year’s second half.
Meanwhile, we should remember that market economies have powerful and often-unanticipated ways to reknit when torn asunder by catastrophes and policy mistakes. The reknit economy will not be a duplicate of what we had before. Among other things, we are witnessing movement to a more resilient, better-informed, and better-connected world.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
