Goldman Sachs: Virus-related unemployment will hit 15% before FASTEST recovery in history

Yes, it will get worse before it gets better, but it should get better very quickly

By Jon Dougherty @TheNatSent

(TNS) There is good news and bad news from Goldman Sachs in a new analysis of the effects of the coronavirus on our country and our economy.

First, the bad news: There are going to be job losses. A lot of them. But, all things considered, not as many as there could be.

According to the financial firm, we can expect unemployment to rocket skyward for the next few months — from historical lows of around 3.5 percent prior to the outbreak to perhaps as high as 15 percent, or fully 5 percent higher than the 10 percent mark reached during the Great Recession.

More bad news: Gross domestic product is also going to fall, and by a stunning amount according to Goldman Sachs — which makes sense because businesses are being shuttered left and right and people aren’t going anywhere or doing anything to spend much money.

As CNBC reports:

Among its expectations are that the unemployment rate will peak at around 15% later this year, well above original expectations for 9%. Gross domestic product is forecast to fall 9% in the first quarter followed by a stunning 34% plunge in the second quarter that would be by far the worst period in post-World War II history.

But then, by the third quarter (July-September):

After that, Goldman expects the U.S. to see a spike higher in activity, featuring a 19% surge in Q3. That would take the U.S. from the worst quarter in history to its best.

Obviously, financial analysts at the firm believe the country will have the outbreak well in hand and far in decline well before then. It’s just that we’re going to go through some pain in the meantime.

“This not only means deeper negatives in the very near term but also raises the specter of more adverse second-round effects on income and spending a bit further down the road,” the firm said in a note.

“On the other hand, both monetary and fiscal policy are easing dramatically further, which will tend to contain these second-round effects and add to growth down the road,” analysts predicted.

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For the full year, Goldman forecasts a 6.2% decline in GDP, which also would be worse than anything the nation has seen going back to the Great Depression. The second-quarter plunge would be more than triple the previous low of 10% set in the first quarter of 1958. The Great Recession low of 8.4% came in the fourth quarter of 2008.

A sharp rebound, though, is expected to follow.

Besides fiscal support measures implemented by government and the Federal Reserve to support Americans and businesses via policy and legislation, measures taken to contain the coronavirus spread, specifically through social distancing and increased testing, will “result in sharply lower new infections over the next month, and our baseline is that slower virus spread and adaptation by businesses and individuals should set the stage for a gradual recovery in output starting in May/June,” Goldman wrote.

Factory production will fall but only because of certain industries, like automobiles. But much of that decline will be offset by dramatic increases in food and medical equipment production, the analysts write.

“We expect manufacturing to recover somewhat more rapidly than services, as factories are likely to reopen more quickly than non-essential services firms,” they noted.

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Others are predicting deeper pain — but an equally meteoric recovery:

The St. Louis Federal Reserve recently estimated an unemployment rate that could hit 32% amid 47 million layoffs. However, St. Louis Fed President James Bullard has said he expects the economy to stage a strong recovery after.

So, bottom line is this: Barring any unforeseen circumstances that would make coronavirus disappear more rapidly, we’re in for some pain in the near-term. But the recovery is going to be kick-butt.


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