Goldman Projects a Catastrophic GDP Decline Worse than Great Depression

Mish

Goldman projects a 6% decline in GDP in the first quarter followed by a 24% decline in the second quarter.

Unprecedented Decline in Economic Activity

Please note Goldman sees Unprecedented Stop in Economic Activity, with 2nd Quarter GDP Contracting 24%.

Key Points

  1. Goldman Sachs economists forecast a historically sharp and swift recession, with second-quarter GDP sinking a stunning 24% after a 6% decline in the first quarter.
  2. The economists had expected a decline of 5% in the second quarter, after a flat first quarter but they said social distancing measures have affected many sectors of the economy and will hit the first and second quarter hard.
  3. The economists still expect a spring back in the third quarter of 12%, but they see unemployment peaking at 9%.

9% of the US Has Been Laid Off Due to the Coronavirus

A SurveyUSA poll shows 9% of the US Has Been Laid Off Due to the Coronavirus

I crunched the numbers based on those poll stats and come up with a U3 unemployment rate of 12% and a U6 rate of 39.7%. See the link for details and calculations.

Conclusion: Goldman is way too optimistic on the unemployment rate.

Other GDP Estimates

Delusional Forecast

Advice Ignored by Trump

Fast Rebound Fantasies

I do not get these fast rebound fantasies and neither does Jim Bianco. He retweeted a Goldman Sachs estimate which is not the same as endorsing it.

I do not know how deep this gets, but the rebound will not be quick, no matter what.

Share buybacks, outsourcing to China, earnings, and ludicrous share prices based on forward PEs are all going to take a hit. Retired boomers will not be traveling as much as they thought. Countless small businesses will be wiped out.

Millennials still will not be able to afford houses. Consumers will need to rebuild savings cushions but their working hours will still be reduced. People will eat out less which will impact tips.

Many of those thinking of buying a new car will postpone that decision.

The Huge Fear: How Do I Pay the Bills?

Please note the Huge Fear: The Huge Fear: How Do I Pay the Bills?

That fear will linger a long, long time.

It is nearly crazy to project a fast rebound from this disaster.

This is not a 911 replay, nor is it anything the Fed or central banks can fix.

Mike "Mish" Shedlock

Comments (127)
No. 1-36
michiganmoon
michiganmoon

I tried to talk my dad moving his money out of 100% stocks and pay off the house and then put at least half of the rest in a money market anticipating a collapse.

He didn't. He retires next week.

Freebees2me
Freebees2me

Mish - we'll be lucky if it's not worse.....

God help us all.....

Casual_Observer
Casual_Observer

The longer Trump doesnt act the more it looks like he is hoping this goes on until election day. Oddly the pandemic lead on the NSC and her group was disbanded after testifying the country wasnt prepared for a pandemic. Trump looks like he deliberately did this. The question is why.

awc13
awc13

this will turn out to be the great pandemic that wasn't. just watch. the greatest harm will be to the economy, which is why the MSM is hyping the scare. orange man bad is all they know

Freebees2me
Freebees2me

At 9:14 p.m. on Friday, March 20th

Secretary Mnuchin said on Fox Business that they (Treasury Dept) wanted to make sure that Americans could get their money out of money markets.... He CLEARLY implied that there was a problem and they were trying to head it off......

WTF does that mean??????

Maximus_Minimus
Maximus_Minimus

Back then, didn't have to deal with debt out the wazoo, and the Spanish flu was behind them. The population was more used to hardship, and the term snowflakes was still a century away.
The only downside: they didn't have great scholars like Ben Bernanke.

Quatloo
Quatloo

Great article Mish. Why is no one else talking about this?

Rbm
Rbm

Well were about to find out why our great grand parents saved everything and wasted nothing

Stuki
Stuki

Very fundamentally, the emergence of the sars-cov2 virus, increases the chances of other viruses, closely related but perhaps not closely enough to be affected by sars-cov2 immunity, emerging as well. Risk of echoes of this pandemic is not trivial.

And due to how far and wide humanity have carried this one, such echoes could emerge in other places than China. Perhaps places where early detection and a forceful response is less likely.

So the blind assumption that preferences, hence the economy catering to them, will quickly revert to its pre-sars-cov2 state, may be a bit premature.

Realist
Realist

My estimate remains -10% GDP for the year; followed by low single digit growth for a few years after that; followed by zero growth on average for the foreseeable future.

The bigger short-term problem is going to be the human suffering and high number of deaths.

ohno
ohno

Who are these idiots 12% in 3rd qtr lmao!!!!!!!!! They use a crystal ball that shows them this crap! Probably paid out the ass to boot.

killben
killben

Will the Fed be able to save the world?

QE2Infinity
QE2Infinity

The problem with the "quick bounce back" forecast is, it doesn't take into account the bad state of the economy before the crisis. The Repo market was indicating an impending debt crisis back in September and the Fed was increasing its balance sheet to stave off the liquidity crunch. The "shutdown the economy" response to COVID-19 will cause massive shockwaves through the system. It is just the catalyst that will usher in the much more serious and severe "Greater Depression."

Greggg
Greggg

Remember all those people that bought the big houses with 3% down payments and had to have all the granite counter tops and went into hock up to their eyeballs for the glitz? Well those are going to be the plagues in the neighborhood when the foreclosure sale fails to find buyers. They may become the next homeless shelter that isn't sponsored by the gubberment.

AshH
AshH

Shame. It didn't have to be like this. We had the option of robust testing like S Korea, or shutting down like Italy, and the Govt chose Italy. Wasted weeks of prep time hoping it would just go away on its own. Well, here we are. We'll eventually get through this, but lots of pain ahead. Best of luck to all my fellow citizens.

Jojo
Jojo

This is an article that everyone should be reading!
................
A fiasco in the making? As the coronavirus pandemic takes hold, we are making decisions without reliable data
By John P.A. Ioannidis
March 17, 2020

The current coronavirus disease, Covid-19, has been called a once-in-a-century pandemic. But it may also be a once-in-a-century evidence fiasco.

At a time when everyone needs better information, from disease modelers and governments to people quarantined or just social distancing, we lack reliable evidence on how many people have been infected with SARS-CoV-2 or who continue to become infected. Better information is needed to guide decisions and actions of monumental significance and to monitor their impact.

Draconian countermeasures have been adopted in many countries. If the pandemic dissipates — either on its own or because of these measures — short-term extreme social distancing and lockdowns may be bearable. How long, though, should measures like these be continued if the pandemic churns across the globe unabated? How can policymakers tell if they are doing more good than harm?

....

One can only hope that, much like in 1918, life will continue. Conversely, with lockdowns of months, if not years, life largely stops, short-term and long-term consequences are entirely unknown, and billions, not just millions, of lives may be eventually at stake.

If we decide to jump off the cliff, we need some data to inform us about the rationale of such an action and the chances of landing somewhere safe.

John P.A. Ioannidis is professor of medicine, of epidemiology and population health, of biomedical data science, and of statistics at Stanford University and co-director of Stanford’s Meta-Research Innovation Center.

About the Author
John P.A. Ioannidis
jioannid@stanford.edu
@METRICStanford

crazyworld
crazyworld

THE WAY I UNDERSTAND THESE GOLDMAN FIGURES.

The "rebond" of 12 per cent in third quarter is possible because they refer it to a GDP
base reduced by about 30 per cent after first and second quarter. It should mean that the quarter three GDP will still be after a 12 per cent, rebond 20 per cent lower than last 2019 quarter.

crazyworld
crazyworld

If GDP loose 30 per cent in total in the first two quarters you need afterwards a total cumulative grow of 40 per cent to go get the GDP at a level even from where you started. So at end 2020, as per Goldman figures there is still a severe recession.
However stock markets have an idiotic herd mentality and are only motivated by positive growth whichever the level you start from.

WarpartySerf
WarpartySerf

Can I still buy "rebond" to fix my shoes ? Is that essential activity?

Six000mileyear
Six000mileyear

The effect of "STAY AT HOME" executive orders are going to show up in the unemployment application surge over the next week or two.

WildBull
WildBull

Goldaman's got the big short already in.

Saxman74
Saxman74

I just did a back of the envelope calculation, and even with the bounce back this forecast is not so positive. At the end of the year GDP will still be 12 % below 2019. If employment declines at the same rate, that's about 15 million more unemployed. (Sorry couldn't get columns to line up!)

	Annual rate of GDP ($bil)		Annual rate of Growth

q4 2019 20,000
q1 2020 18,800 -6%
q2 2000 14,288 -24%
q3 2000 16,003 12%
q4 2000 17,603 10%

Total Change -12%

JimMcHale
JimMcHale

It’s just clear you have no ideas and are only able to criticize after the fact. I didn’t say I liked or didn’t like Trump. But clearly you are a never Trumper with no original thoughts of your own. Enjoy your life.

Sechel
Sechel

it will be severe. I see republicans and trump flubbing the economic response. the answer should be getting money to everyone so they'll spend it. u.k. has the right answer 80% of wages subject to a cap. everyone qualifies. this idea of moral hazzard while getting ready to throw money at corporations like ual is very misplaced.. companies aren't end consumers if they have more money than they need they'll issue a dividend or invest in securities until they can issue a dividend or they'll buy a competitor. not things that we need right now especially with tax payer funded money.

Jeff Dog
Jeff Dog

your definitely not losing your job if you are in the toilet paper business; there is never any on the shelves. 911 is getting calls for people stranded on the toilet without a roll. since this virus arrived it seems the national average rate if pooing has really increased.

Tony Bennett
Tony Bennett

ANYONE who thinks there will be a V recovery is DELUSIONAL.

Advancingtime
Advancingtime

The damage already inflicted upon the economy by covid-19 has pulled a key support block out of the debt pyramid. We have crossed the tipping point with the destruction of small businesses by the government in the name of the "greater good."

This signals the end of the "buy the dip" era. The saying, don't try to catch a falling knife may prove to be far better advice than buying each time the market notches it's way lower. More on this subject in the article below.

Tony Bennett
Tony Bennett

The yield curve flattened yesterday.

A flattened curve is what I would expect if bonds allowed to act "normally"*.

*Parity funds facing margin calls have made bonds act irrationally.

Deleveraging nearly done? Especially with options expiry yesterday?

Zardoz
Zardoz

So who are we going to war with to distract people from this? China, or Russia?

njbr
njbr

This is what is needed to restart the economy....

testing, testing, testing...

that's it.

Tests to see if you've had it (ok to resume normal activity)

Tests to see if you currently have it (stay isolated)

Tests to see if you have not had it yet (be very cautious)

What else can you do?

CzarChasm-Reigns
CzarChasm-Reigns

Its not as easy as a mic check: testing, testing, 1, 2, 3.
In fact, it appears to be both impractical and unhelpful:

"In strategic shift, doctors in America's two largest cities are told to skip some coronavirus testing"

"The recommendation reflects a 'shifting from a strategy of case containment to slowing disease transmission and averting excess morbidity and mortality,' according to the statement."

Quotes from CNN LiveUpdate

Mish
Mish

Editor

Facts for @JimMcHale

The fact is : I voted for Trump

The fact is : I praised his supreme court picks

The fact is : Trump is an economic illiterate who does not understand trade

The fact is: Trump is an enormous narcissist in love with himself despite amazingly little talent

The fact is: I did comment on the trajectory of the coronavirus from the beginning, long before all but an exceptionally tiny number of people

The fact is: I was not listened to

The fact is: you are the one with TDS if you choose to praise Trump's moronic handling of the coronavirus

Mish
Mish

Editor

What SPECIFIC things do you think Trump should do?

  1. Stop his asinine trade war - which by the way restricts medical products as well

  2. Use the tests developed elsewhere instead of insisting on made-in-USA label where there is still a shortage

  3. Show a little humility instead of bragging about how fantastic his handling has been. He rated government response as perfect

  4. Stop calling this the China virus inflaming global tensions

  5. Apologize for his asinine comment about 15 cases soon headed to zero

  6. Put partisan politics aside for once even if the democrats won't

  7. Allow medical supplies to go to Iran. Instead this mother F*er actually tightened sanctions on Iran in the midst of a humanitarian crisis

I am sure I can come up with more but that is a reasonable start

njbr
njbr

Without extensive testing there will be no end date to restrictions.

In the current medical situation--there are insufficient tests, results take too long, there are insufficient test products in the pipeline and the lung scans of victims have very characteristic appearances.

Of course it is too late for testing those who have it critically now. If they can't breathe, there is no-one saying wait for testing.

The only way forward is to somehow determine the progress of the epidemic. It is clear that there is nowhere to draw a fire-wall in the USA. It's here, it's infecting more and more people every minute. But without wide-spread testing, you will remain too long in the duck-and-cover position.

RonJ
RonJ

"Goldman Projects a Catastrophic GDP Decline Worse than Great Depression"

Well, largely shut down the economy, that is what one should expect.
To quote Karl Denninger, "You're burning the village to save it." Is it worth it to do that? What are the unintended consequences?


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