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PERIODICAL

The Conference Board Economic Forecast for the US Economy

US economic contraction deepens and recovery will be slow

The advance estimate of first quarter 2020 GDP shows a contraction of -4.8 percent (annualized) over the last quarter of 2019. However, it is important to note that due to the large shock the US economy is undergoing - which was heavily concentrated in the last month of Q1 - that it is likely that these preliminary data will be heavily revised. It is likely that revisions will be on the downside because many of the updated series show worse performance than forecast.

The deep contraction of economic activity will continue into Q2, even though most of the decline will be concentrated in April. The latest job numbers for April, which showed an increase in unemployment to 14.7 percent, may still be an understatement of the actual amount of slack currently in the labor market, as involuntary part-time employment increased and the total labor force shrank. The forecasts for U.S. retail sales and industrial production also suggest sharp declines for April.

May and June will show some recovery as the economy begins to open again. But as our month-by-month scenarios show, even in the most optimistic case (a V-shape rebound), not even half of the losses suffered during March and April will be made up for by the end of Q2.

The Conference Board is adopting a U-shape scenario as our base forecast, and we expect second quarter GDP to decline by almost 45 percent (annualized). This large drop is driven by a fall in consumer spending of more than 50%, a drop in real capital spending of just over 20% and a fall in exports of more than 35%. By the end of June, economic output will have recovered to 87% of what it was in December 2019.

Our U-shaped growth scenario assumes a slow recovery in the second half of the year that will bring December 2020 economic output to about 96% of what it was a year earlier. This recovery will be primarily driven by consumer spending in Q3 and Q4. We don’t expect a recovery in investment to start until Q4. Despite some isolated supply-side price spikes, overall inflation is likely to remain weak at -0.4% for the first half of 2020 and 0.5% for the second half. This is due to soft demand, muted oil prices, and ongoing monetary support.

On the basis of our U-shaped scenario, GDP will contract by -7.2 percent for 2020 on the whole. This compares unfavorably to the -4 percent contraction associated with our V-shaped recovery scenario. However, the more rapid V-shaped scenario is predicated on a rapid reopening of the US economy that may trigger a COVID-19 resurgence that would require implementation of containment measures. This would result in a W-shaped scenario that would hurt fourth quarter growth and extend this economic crisis into 2021.



The US Economic Forecast

THE CONFERENCE BOARD ECONOMIC OUTLOOK, 2018-2019-2020
Percentage change, seasonally adjusted annual rates (except where noted)


 20192020201820192020
 
1st 
half
2nd half
I
Q
II
Q

III
Q

 IV
Q
ANNUAL
ANNUAL
ANNUAL
Real
GDP
2.6 2.1 -4.8 -44.5 24.4 18.9 2.9 2.3 -7.2
Real
Consumer
Spending
2.8 2.5 -7.6 -54.2 36.3 15.5 3.0 2.6 -10.0
Residential
Investment
-2.0 5.6 21.0 -25.0 -7.0 11.0 -1.5 -1.5 0.7
Real
Capital
Spending
1.7 -2.4 -8.6 -20.8 -2.4 8.6 6.4 2.1 -6.9
Exports -0.7 1.5 -8.7 -35.1 11.1 9.0 3.0 0.0 -8.0

 

 

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