Vining Sparks Forecast Revision, April 2020
by Craig Dismuke, Dudley Carter
Coronavirus’s Toll on Economic Activity Growing
The coronavirus has wreaked more havoc on the U.S. economy than expected. Initially, it appeared the virus would be able to be contained with less expansive containment measures. Half of U.S. states have now issued some form of stay-home orders. As such, there is now 61% of the population living under restricted conditions. Given that the virus continues to spread, it now appears widespread containment measures will be needed for several more weeks, and likely longer in some areas. While we cannot predict the future path of the virus, the economic damage is clearly growing.
As we will discuss in our 2Q Economic Outlook Webinar next Tuesday (register here), we approach economic forecasting from three different angles: income, expenditure, and value-added by industry. Under normal circumstances, the expenditure approach is the most simple method and provides sufficient outputs. Expenditures today, however, are more difficult to anticipate for a number of reasons. Combining a scaled-down income approach, specifically looking at labor income, with a cursory value-added analysis, it now appears that the economy is likely to contract significantly in the first half of the year. We have penciled in a 7% contraction in 1Q followed by a 14% contraction in 2Q. We note that they are in pencil because there remains a high degree of uncertainty accompanying these numbers. There is, however, little uncertainty that the economy is going to contract sharply.
The longer the disruption persists, the more sluggish the 2H rebound is likely to be. Already, we anticipate a significant loss of overall output in 2020. The various stimulus measures implemented are expected to cushion the impact and provide a tailwind to the rebound, but are unlikely to avert the damage.