The economic damage inflicted by the current COVID-19 pandemic has been unprecedented, with thousands of businesses temporarily shuttered and millions of workers out of work. While the historic drop in economic activity is real and will be reflected in the second quarter gross domestic product (GDP) numbers, some nuances in the way GDP is reported may be exaggerating the extent of the damage.
According to data from Bloomberg, the average forecast gathered in April for Q2 quarter-over-quarter GDP growth in the US is -26.3%. So does this mean economic activity will be 26% less this year? The short answer is no. Because these numbers are reported on an annualized basis, these forecasts reflect the change as if it occurred over the full year. In other words, this number needs to be divided by four to reflect the actual change in domestic output in the economy. This isn’t meant to trivialize the number, but a 6.5% decrease in output means that the economy is still producing at 93.5% level of what it produced the prior quarter, far better than the more than a 25% hit that some might assume from the headline number.
Further, these numbers are not reflective of the bounceback in activity we believe could come in the second half of the year. “We may get the worst GDP print of our lifetimes in the second quarter,” said LPL Financial Senior Market Strategist Ryan Detrick. “And that could be followed by the best we’ve ever seen in our lifetimes during the fourth quarter .”
For more on why we think this recession could be one of the quickest we’ve ever seen, be on the lookout for our latest Weekly Market Commentary due out next Monday.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC.
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
If your representative is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union.
These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking 1-980311