Morgan Stanley: 38% economic contraction, unemployment peaks at 15.7% in Q2

Based on all the reports of corporate layoffs I have personally heard about today, I would not be surprised if jobless claims next week hit 10 million. It seems like everyone is giving up en masse and pushing their employees onto the government.

Bank of America says 58,000 small businesses have asked for $6 billion in loans since 9 a.m.

The country’s top banks are cranking out ever more pessimistic forecasts too. They are seemingly divided on what the trajectory for any possible recovery looks like. As these shutdowns get pushed further out, it’s becoming impossible even to guess. I’d say a lot of that depends on whether the Treasury and Fed can stave off a financial crisis while the economy is shut down.

From Reuters:

The United States economy will shrink 5.5% in 2020, the steepest drop since 1946, with a huge 38% contraction predicted for the second quarter, Morgan Stanley said on Friday in a new batch of forecasts on the economic damage from the coronavirus outbreak.

The U.S. bank said it had cut its first-quarter forecast to an annualised 3.4% contraction from a previous 2.4%, while in the second quarter the economy is predicted to shrink 38%, up from an earlier forecast of a 30% contraction.

U.S. unemployment will also peak at a record 15.7% in the second quarter – that is up from a previous 12.8% forecast by the bank’s economists – with cumulative job losses of 21 million in the second quarter, Morgan Stanley said.

Projections released by the U.S. Congressional Budget Office showed U.S. gross domestic product will decline by more than 7% in the second quarter as the health crisis intensifies.

That last bit is what amazes me. Government agencies, from the CBO to state forecasters, seem to be in denial of what this is going to do to revenues. It’s going to be interesting when that reality check gets cashed.

2 thoughts on “Morgan Stanley: 38% economic contraction, unemployment peaks at 15.7% in Q2

  1. To me, the way Obama ramped up our debt by a trillion and Trump wants to ramp it up another 2 trillion shows that there is no longer any reality check. It’s just spend as desired and pretend there’s no debt. Or they just want to inflate the currency until the debt is trivial.

    Liked by 1 person

    1. This goes back to what I was saying in an earlier post about having policymakers with short time horizons. All of these people are in their 60s to 70s now. The money’s not real to them.


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