With businesses across the country shuttered and residents staying home to stop the spread of the COVID-19 novel coronavirus in the United States, we know that the economic impact will be severe. While the lag in many official economic statistics continues to hamper our ability to measure the economic impact, there are a few high-frequency releases that are beginning to give us some clarity. Let’s consider what data we currently have, what is still coming in, and the current growth forecasts.
U.S. GDP Contracts in the First Quarter
The initial snapshot of 1Q 2020 U.S. GDP growth showed that the economy contracted by 4.8% (q/q SAAR), worse than FactSet’s consensus estimate for a 4.0% decline. However, the Bureau of Economic Analysis made clear that, “The advance estimate of GDP for the first quarter is based on source data that are incomplete and subject to updates.” The decrease in first-quarter real GDP was largely driven by the 7.6% decline in consumer spending, which subtracted 5.3% from the total GDP number. Investment was also a drag on growth, while an improvement in the trade deficit partially offset these negatives. We may see downward revisions to these numbers with the next two data revisions, and second-quarter growth is expected to be far worse. Analysts surveyed by FactSet are currently expecting a 29.9% contraction in Q2.
Negative Oil Prices?
On April 20, something unprecedented occurred: oil prices went negative. How did this happen and what does it mean? With the WTI May futures contract about to expire, traders suddenly began to panic, fearing that they would have to take delivery of the oil. Normally, finding a party willing to buy the contract wouldn’t be a problem. However, with global oil demand plummeting, we’re seeing an enormous supply glut and rapidly growing shortage of storage space for crude oil. This put traders in a position of having to pay someone to take the oil contracts off their hands. At one point on April 20, the WTI May futures contract was trading at nearly -$40 per barrel.
According to data from the U.S. Energy Information Administration, crude oil stockpiles rose by 9 million barrels for the week ending April 24. Over the last five weeks, crude stockpiles have surged by 72.2 million barrels, a 15.9% increase.
U.S. Commercial Banks See a Surge in Assets and Liabilities
Since early March, U.S. banks have seen sharp increases both in loans and deposits. In their recent first-quarter earnings calls, both Bank of America and Citigroup indicated that they have been seeing corporations drawing on their outstanding credit lines and then depositing those funds as they prepare for the recession. According to the Federal Reserve’s latest H.8 Assets and Liabilities of Commercial Banks release, total assets of commercial banks in the U.S. were up 17.0% year-over-year (seasonally adjusted basis) for the week ending April 15, while liabilities surged 18.7% compared to a year ago. The last time we saw double-digit growth in these metrics was in the fall of 2008, during the global financial crisis.
Consumer Confidence Plummets to a Near Six-Year Low
According to The Conference Board, consumer confidence has weakened significantly with the overall index falling from 118.8 in March to 86.9 in April, the lowest reading since June 2014. The key component dragging down the index was the Present Situation Index, which is based on consumers’ assessment of current business and labor market conditions. This sub-index saw a 90-point drop, plummeting from 166.7 in March to 76.4 in April; this was the largest monthly drop on record. At the same time, the Expectations Index rose from 86.8 to 93.8, reflecting improvement in consumers’ short-term expectations for the economy and labor market as things begin to re-open. This metric will be an important measure to watch as we look for signs of economic recovery.
Over the last six weeks, more than 30 million Americans have filed for unemployment benefits. This far exceeds the 22.8 million jobs that were added between February 2010 and February 2020 during the expansion following the global financial crisis. However, it’s unclear how the initial claims data will translate over to the household survey portion of the employment report from the Bureau of Labor Statistics. The jobless rate jumped to 4.4% in March and many analysts are predicting an April reading well into the double digits. One mitigating factor will be the number of people who decide to leave the labor force altogether, which would depress the unemployment rate. In March, we saw the labor force shrink by a staggering 1.6 million people; we must wait until May 8 to find out what happened in April.