Economy Collapses, but Recovery in Sight: U.S. Outlook Economic Forecast

The Conference Board of Canada, 21 pages, July 30, 2020
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This quarterly report focuses on the latest economic developments in the U.S. economy, tracking trends in labour, consumer, energy and housing markets, and examining industries and regions. Monetary and fiscal policy assumptions are also included.

Document Highlights

  • Real GDP will plunge 5.4 per cent this year before rebounding and expanding by 5.2 per cent in 2021. The vast majority of the decline in economic activity occurred in the second quarter of this year when mandated shutdowns of factories and many retail and personal service outlets, along with stay-at-home orders, were in place.
  • We expect the economy to gradually recover in the third and fourth quarters of this year as states reopen.
  • Actions by the U.S. Federal Reserve likely saved the economy from a far worse outcome. Chair Jerome Powell said in late March that the Federal Reserve would do whatever it takes to keep financial markets liquid. Since then, the Fed has purchased government and mortgage-backed securities, as well as municipal, corporate, and even junk bonds, to ensure that yields remained low enough to support the fragile recovery. Stock markets started to recover after these actions and have generally been on an upward trend.
  • The federal government was late in responding to the virus threat. President Donald Trump initially downplayed its effects. Then he turned over most of the responsibility for fighting the pandemic to the state governments, and they have been inconsistent in dealing with the crisis. Today, some states, such as New York, have the situation more or less under control, while others are experiencing a dramatic spike in cases. The upshot of the weak response has been a double-digit unemployment rate, which is much higher than in many countries in Europe and elsewhere.
  • The fiscal deficit will surge to close to $3 trillion this year and remain elevated due to the spending required to support the millions of workers who lost their jobs during the mandated shutdowns. To date, the U.S. Treasury has not encountered any difficulties in finding buyers for the government securities it has issued to fund the surge in spending.
  • U.S. multinational corporations may reshore some of their production from China to avoid future disruptions in supply chains. Others could diversify some of their production to other countries in Asia, such as Vietnam or Bangladesh.

Table of Contents

Key findings

Economy collapsed in Q2 but recovery in sight

Aggregate demand

Financial and currency markets

Fiscal policy

Labour markets

What’s behind the low Japanese and high U.S. unemployment rates?

Appendix A—Methodology and assumptions

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