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DR. RAJEEV DHAWANDIRECTOR
Preliminary Economic Update
Presented at the AUBER RoundtableVia Zoom • June 4, 2020
FOMO (Fear of Missing Out)
Morphs intoFOGO (Fear of Going Out)
Source: Financial Times, May 16, 2020
How Risk-Averse Are People?
0
5
10
15
20
25
30
35
Next month Next 2-3 months Next 6 months > 6 months Uncertain
9-Apr 24-Apr 8-May
(%)When Would You Feel Comfortable Going to a Restaurant?
Russia China Oil (OPEC)
Europe
ECB
U.S. Stock Mkt & Bond Mkt
DC Politics
US Consumer Investment
The Macro Model
FederalReserve
Emerging Markets
The Macro ModelNEW
Commodities
Japan Central Bank
Today’s Questions
1. Can the fall travel season be salvaged?1. How many people can safely ride an elevator?2. When will meetings of 100 people happen?3. When will people demand elective medical procedures?4. When will international travel resume w/0 quarantines?
2. Will deflation be followed by inflation or vice versa?
3. Is the 10-year bond rate heading for 2.0%? When?
4. What do the above 3 questions mean for the shape of the recovery?
IVIIIIIIIVIIIIIIIVIIIIIIIVIIIIIIIV20112010200920082007
16200
16000
15800
15600
15400
15200
15000
($ bil.)Real GDP During the Great Recession
Recovery Shapes: V, U and In-Betweens
IIVIIIIIIIVIIIIII198119801979
6950
6900
6850
6800
6750
6700
6650
($ bil.)Real GDP During the 1980 Credit Controls
IVIIIIIIIVIIIIIIIVIIIIII198319821981
7400
7300
7200
7100
7000
6900
6800
6700
($ bil.)Real GDP During the 1981-82 Recession
V
U
IVIIIIIIIVIIIIIIIVIIIIIIIVIII1976197519741973
6100
6000
5900
5800
5700
5600
5500
($ bil.)Real GDP 1973 Oil Shock
Source: Wall Street Journal, March 7, 2020
COVID-19’S Economic Puzzle
Here we have a disease for which we have no vaccine, no treatment…We don’t fully understand transmission, we don’t fully understand case mortality.
Michael RyanExecutive Directorof the WHO Health Emergencies Programme
How Have Retail Sales Fared Since February?
APRMARFEBJANDEC20202019
140
120
100
80
60
40
20
0
(Index)Retail Sales and its Components
Total Nonstore Discretionary Grocery Restaurants
Retail Sales ($ Billions)
Feb ’20 Apr ‘20 Drop
Total 527.2 403.9 ‐23%
Motor Vehicle 105.4 68.5 ‐35%
Nonstore 68.9 78.4 +14%
Grocery & Booze 64.4 71.0 +10%
Gasoline 41.3 24.6 ‐41%
Healthcare 30.0 26.7 ‐11%
Discretionary
Food Service 65.4 32.4 ‐51%
Gen. Merchandise 59.9 50.8 ‐15%
Bldg. Materials 33.3 32.0 ‐4%
Clothing etc. 22.1 2.4 ‐89%
Furniture 10.1 3.3 ‐68%
Electronics 8.2 2.8 ‐66%
Alternate Data Source
Source: www.tracktherecovery.org
Source: Transportation Security Administration (TSA), EFC Calculations
TSA Checkpoint Travel Numbers
‐100%
‐90%
‐80%
‐70%
‐60%
‐50%
‐40%
‐30%
‐20%
‐10%
0%
1‐Mar 11‐Mar 21‐Mar 31‐Mar 10‐Apr 20‐Apr 30‐Apr 10‐May 20‐May 30‐May
Total Traveler Throughput Percent Change (1 Year Ago ‐ Same Weekday)
‐2.74
‐0.37
‐0.46
‐0.97
‐0.98
‐1.33
‐1.44
‐2.11
‐2.13
‐7.65
‐21.7
‐25 ‐20 ‐15 ‐10 ‐5 0
Other
Wholesale Trade
Education
Construction
State/Local Govt.
Manufacturing
Healthcare
Retail
Professional Services
Leisure/Hospitality
Total
Labor Market Carnage: COVID-19 vs GR
(#, Mil.)
COVID‐19 Pandemic (April 2020)
Restaurants
‐0.6
‐2
‐0.1
‐2.4
‐1.2
‐1.5
‐0.6
‐8.5
‐9 ‐7 ‐5 ‐3 ‐1 1
Other
Wholesale Trade
Education
Construction
State/Local Govt.
Manufacturing
Healthcare
Retail
Professional Services
Leisure/Hospitality
Total
Great Recession (2008‐09)
Restaurants
(#, Mil.)
Consumption Spending by TypeRetail Sales ($ Billions) Feb ’20 Apr ‘20 Drop (%) Drop ($)
Total 13,488 10,923 ‐19% ‐2,565
Durables (13%) 1,808 1,329 ‐26% ‐479
Furniture & Equip. 416 319 ‐23% ‐97
New Vehicles 540 366 ‐32% ‐174
Recreational Goods 602 512 ‐15% ‐90
Non Durables (23%) 3,032 2,691 ‐11% ‐341
Clothing & Shoes 407 209 ‐49% ‐198
Gasoline 445 298 ‐33% ‐147
Groceries & Alcohol 891 906 +2% +15
Services Total 8,701 6,947 ‐20% ‐1,754
Accommodations 100 21 ‐79% ‐79
Restaurants 732 385 ‐47% ‐347
Financial Services 516 529 +3% +13
Education 254 235 ‐7% ‐19
Recreation 518 207 ‐60% ‐311
Transportation 445 228 ‐49% ‐217
Utilities 309 328 +6% +19
Healthcare 2,297 1,367 ‐40% ‐930
JUNMAYAPRMARFEBJANDECNOVOCTSEPAUGJULJUN20202019
5
4
3
2
1
0
-1
(%)
1-Day Non-Financial Commercial Paper RateA2/P2 and AA
A2/P2 AA
Source: Wall Street Journal, April 18, 2020
Charlie MungerVice Chairman, Berkshire Hathaway
No, they aren’t. The typical reaction is that people are frozen.
Take the airlines. They don't know what the hell’s doing. They're all negotiating with the government, but they're not calling Warren.
Are Companies Calling Berkshire for Capital?
JUNMARDECSEPJUNMAR20202019
2.5
2.0
1.5
1.0
0.5
0.0
(%)
30-Day Commercial Paper SpreadA2/P2 vs. AA
Source: Federal Reserve, April 2020
Fed Policy Support During COVID-19
Program/Facility Targeted SectorP, DL, or SPV *
Treasury Support ($, Bil.)
Capacity ($, Bil.) Date(s)
Current Balance ($, Bil.)
CPFF Commercial Paper SPV $10 NA 03/17 $12
PDCF Primary Dealers/Liquidity DL $0 NA 03/17 $7
MMLF Money Market Mutual Funds SPV $10 NA 03/18 $33
TALF Asset‐Backed Securities SPV $10 ≤ $100 03/23 ‐
PMCCF, SMCCF Corporate Debt SPV $75 ≤ $750 03/23 ‐
MSELF, MSNLF Small & Mid‐Sized Businesses SPV $75 ≤ $600 03/23, 04/9 ‐
PPPLF Small Business Bank Loan ‐ PPP DL $0 NA 04/6 $49
MLF Municipal Debt SPV $35 ≤ $500 04/9 ‐
Discount Window Banks DL $0 NA 03/15 $18
CB Swap Lines Central Banks/Dollar Liquidity DL $0 NA 03/15, 03/19 $449
FIMA REPO Facility Foreign Monet./Treasury Liquidity DL $0 NA 03/31 ‐
Asset Purchases Treasuries, Agency MBS P $0 NA Several $2,099
REPO Agreements s/t Loans to Finance Intermediary DL $0 NA Several $181
TOTALS $215 >$1,950 $2,848
* P: Purchases, DL: Direct Lending, SPV: Special Purpose Vehicle
-50
0
50
100
150
200
250
300
350
400
450
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Sept 4 Sept 18 Sept 25 Oct 2 Nov 6 Dec 18 Jan 8 29-Jan 5-Feb 13-Feb 27-Feb
Liquidity Pumping by the Fed – Phase I
(%)
Stock Market Performance & Repo Operations, Since Sept. 4, 2019($, Bil.)
Repo Operations - Right
Increase inBalance Sheet - Right
S&P 500 - Left
Source: EFC calculations based on data from Bloomberg
0
500
1000
1500
2000
2500
3000
3500
-20.0
-15.0
-10.0
-5.0
0.0
5.0
27-Feb 19-Mar 2-Apr 23-Apr 7-May 14-May 21-May Latest
Liquidity Pumping by the Fed – Phase II
(%)
Stock Market Performance & Repo Operations, Since Feb. 27, 2020($, Bil.)
Repo Operations - Right
Increase inBalance Sheet - Right
S&P 500 - Left
Source: EFC calculations based on data from Bloomberg
Consumer Confidence & Recessions
Source: Data from HIS Markit
(Index: 1966 = 100)
’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ‘17 ‘18 ’19 ‘200
20
40
60
80
100
120
140
160
Source: Speech by Chair Powell, May 13, 2020
Jerome PowellChairmanFederal Reserve
recovery.
But the recovery may take some time to gather momentum,and the passage of time can turn liquidity problems into solvency problems.Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.
Powell Greenlights Additional Fiscal Actions
JUNMARDECSEPJUNMARDECSEPJUNMARDECSEPJUNMAR2020201920182017
2.5
2.0
1.5
1.0
0.5
0.0
(%)
Implied Inflation Rate10-Year Treasury Less 10-Year TIPS Rate
IMF Warns of Global Rise in Public Debt
Government Deficits Set to Rise
‐18 ‐16 ‐14 ‐12 ‐10 ‐8 ‐6 ‐4 ‐2 0 2 4
Russia
India
Brazil
China
Emerging Economies
Germany
Japan
Italy
UK
France
Canada
US
Advanced Economies 20202019
Source: Data from IMF
(% of GDP)
What Will Happen to Interest Rates?
Source: Longer‐Run Economic Consequences of Pandemics, FRBSF Working paper 2020‐29
The State of Current Inflation
What Will Actually Prevent Inflation From Igniting?
How Does Covid-19 Recovery Looks?
IVIIIIIIIVIIIIIIIVIIIIIIIVIIIIIIIVIIIIII20232022202120202019
2400
2200
2000
1800
1600
1400
($ bil.)Medical Spending (COVID-19 Episode)
APRMARFEBJANDECNOVOCTSEPAUGJULJUNMAYAPRMARFEBJAN20202019
120
100
80
60
40
20
0
(Index, Jan 2019=100)Auto Sales Dropoff: US versus China
U.S. China
Quarterly Annual
Q2‐20 Q3‐20 Q4‐20 Q1‐21 Q2‐21 Q3‐21 Q4‐21 Q1‐22 2020 2021 2022
Real GDP (%) ‐41.8 3.4 1.0 5.7 4.6 4.0 9.8 3.4 ‐9.5 0.4 6.1
Consumption (%) ‐48.8 13.1 7.4 3.7 3.8 5.5 13.9 4.4 ‐10.7 1.6 7.0
Investment (%) ‐33.1 ‐25.9 ‐3.8 ‐2.4 ‐1.7 ‐1.2 0.0 8.0 ‐13.1 ‐6.6 5.8
Auto Sales (mil.) 10.9 11.9 12.0 12.2 12.4 12.6 12.7 13.7 12.5 12.5 14.1
Housing Starts (mil.) 0.815 0.865 0.876 0.818 0.837 0.876 0.886 0.942 1.006 0.854 1.121
Job Gains (‘000) ‐28,900 ‐3,712 2,255 4,232 3,244 2,287 2,306 1,583 ‐21,828 994 8,588
Crude Oil ($/bbl) 26.8 33.4 35.0 39.6 34.3 40.4 42.6 48.9 35.2 39.2 54.2
CPI ‐3.3 2.3 2.2 1.9 2.1 1.9 2.0 3.0 0.9 1.7 2.8
Core ‐ CPI 1.2 1.9 0.9 1.0 1.1 0.9 1.1 1.4 1.9 1.1 1.5
Real U.S. Dollar (%) 23.3 4.0 7.7 4.5 ‐7.3 ‐5.8 ‐7.7 ‐7.0 7.3 1.6 ‐6.6
10‐year T‐Bonds 0.7 0.7 0.9 1.2 1.4 1.7 1.8 2.1 0.9 1.5 2.2
Fiscal Deficit(bil. $)/% of GDP ‐4,110 ‐4,645 ‐3,434 ‐2,953 ‐2,823 ‐2,751 ‐2,528 ‐2,503 ‐17.3% ‐13.9% ‐11.1%
US Forecast Summary, May 2020
IVIIIIIIIVIIIIIIIVIIIIIIIVIIIIIIIVIIIIII20232022202120202019
155
150
145
140
135
130
125
120
115
(mil.)Employment (COVID-19 Episode)
IVIIIIIIIVIIIIIIIVIIIIIIIVIIIIIIIVIIIIII20232022202120202019
20000
19000
18000
17000
16000
($ bil.)Real GDP (COVID-19 Episode)
How Does Covid-19 Recovery Looks?
Here is the Solution!
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@EFC_GSU
Economic Forecasting Center at Georgia State University
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