Conference Board commentary on US GDP for 1Q/20

US GDP contracts by 4.8 percent in Q1, but the real damage won’t be seen until Q2

Erik Lundh, Senior Economist, The Conference Board

US Real Gross Domestic Product contracted by -4.8 percent during the first quarter of 2020. This quarterly annualized growth rate was significantly lower than the +2.1 percent growth rate reported in Q4 2019 due to the impact of COVID-19 on the US economy. It is also important to note that due to the large shock the US economy is undergoing, it is likely that these preliminary data will be heavily revised over the coming months.

According to the Bureau of Economic Analysis, personal consumption expenditures dropped by -7.6 percent and non-residential investment fell by -8.6 percent in Q1, meaning that both US consumers and businesses pulled back spending. The drop seen in consumption was broader than expected – going beyond categories like food service & accommodations. Healthcare services, for instance, saw a very large contraction. Additionally, personal incomes continued to grow in Q1 but personal savings jumped to 9.6 percent from 7.6 percent in the previous quarter.

While this contraction is not unexpected, it should be noted that social distancing policies only began to be widely implemented in the United States in mid-March. Because of this, the pandemic’s impact on the US economy was limited to the very end of Q1 and is impacting Q2 much more severely. We therefore expect a much deeper contraction of between -38.8 and -43.7 percent (annualized) in Q2. The degree of the contraction will depend on the path the virus takes through June and the degree to which the economy is “reopened.”

The growth forecasts for Q3 and Q4 are also highly ambiguous, and will depend on new infection rates, treatment options, testing availability and government policies. The Conference Board presently has three distinct scenarios for US economic growth in 2020 that range from a “U” shaped fall recovery scenario (yielding annual GDP growth of -6.5 percent) to a more daunting scenario wherein COVID-19 infections resurge in Q4 (yielding annual GDP growth of -7.4 percent).

About The Conference Board
The Conference Board is the member-driven think tank that delivers trusted insights for what’s ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.

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Conference Board Consumer Confidence Index for April; 2020

The Conference Board Consumer Confidence Index Weakened Significantly in April

New York, April 28, 2020…The Conference Board Consumer Confidence Index® deteriorated further in April, following a sharp decline in March. The Index now stands at 86.9 (1985=100), down from 118.8 in March. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – also declined considerably, from 166.7 to 76.4. However, the Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – improved from 86.8 in March to 93.8 this month.

“Consumer confidence weakened significantly in April, driven by a severe deterioration in current conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The 90-point drop in the Present Situation Index, the largest on record, reflects the sharp contraction in economic activity and surge in unemployment claims brought about by the COVID-19 crisis. Consumers’ short-term expectations for the economy and labor market improved, likely prompted by the possibility that stay-at-home restrictions will loosen soon, along with a re-opening of the economy. However, consumers were less optimistic about their financial prospects and this could have repercussions for spending as the recovery takes hold. The uncertainty of the economic effects of COVID-19 will likely cause expectations to fluctuate in the months ahead.”

The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was April 17.

Consumers’ appraisal of current conditions declined considerably in April. Those claiming business conditions are “good” decreased from 39.2 percent to 20.8 percent, while those claiming business conditions are “bad” increased from 11.7 percent to 45.2 percent. Consumers’ assessment of the job market also eroded significantly from last month. Those saying jobs are “plentiful” decreased from 43.3 percent to 20.0 percent. Those claiming jobs are “hard to get” increased from 13.8 percent to 33.6 percent.

Consumers, however, were somewhat optimistic about the short-term outlook. The percentage of consumers expecting business conditions will improve over the next six months increased from 18.7 percent to 40.0 percent, however those expecting business conditions will worsen also increased, from 16.4 percent to 25.7 percent.

Consumers’ outlook for the labor market was mixed. The proportion expecting more jobs rose from 16.9 percent to 41.0 percent, while those anticipating fewer jobs in the months ahead also increased, from 17.6 percent to 20.8 percent. Regarding their short-term income prospects, the percentage of consumers expecting an increase declined from 20.0 percent to 16.7 percent, while the proportion expecting a decrease rose from 10.1 percent to 18.5 percent.

Source: April 2020 Consumer Confidence Survey®
The Conference Board

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National residential new home sales for March; 2020

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Conference Board Leading Economic Index for March, 2020

The Conference Board Leading Economic Index® (LEI) for the U.S. Plummets in March
Largest Decline in Index’s 60-Year History

NEW YORK, April 17, 2020…The Conference Board Leading Economic Index® (LEI) for the U.S. declined 6.7 percent in March to 104.2 (2016 = 100), following a 0.2 percent decrease in February, and a 0.4 percent increase in January.

“In March, the U.S. LEI registered the largest decline in its 60-year history,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The unprecedented and sudden deterioration was broad based, with the largest negative contributions coming from initial claims for unemployment insurance and stock prices. The sharp drop in the LEI reflects the sudden halting in business activity as a result of the global pandemic and suggests the U.S. economy will be facing a very deep contraction.”

The Conference Board Coincident Economic Index® (CEI) for the U.S. decreased 0.9 percent in March to 106.6 (2016 = 100), following a 0.3 percent increase in February, and a 0.1 percent increase in January.

The Conference Board Lagging Economic Index® (LAG) for the U.S. increased 1.2 percent in March to 110.2 (2016 = 100), following a 0.3 percent increase in February, and a 0.1 percent decline in January.

About The Conference Board Leading Economic Index® (LEI) for the U.S.
The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading, coincident, and lagging economic indexes are essentially composite averages of several individual leading, coincident, or lagging indicators. They are constructed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component – primarily because they smooth out some of the volatility of individual components.

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Conference Board survey of economic conditions; April 16 2020

Globally, Consumers Were Confident in Early 2020, But COVID-19 is Rapidly Eroding Confidence

Depth of the Fall – and the Recovery from It – Will Vary By Country

New York, April 16, 2020…In the months ahead, a series of cascading events will cause a global drop in consumer confidence, says a new report by The Conference Board. A downward economic spiral, triggered by the COVID-19 global pandemic and followed by government restrictions that suddenly shut down businesses and halted consumer spending, will cause a significant decline in confidence throughout all regions of the world, at least through the second quarter.

The Conference Board® Global Consumer Confidence Survey 2020 Q1, conducted in collaboration with Nielsen, describes the state of the consumer at the onset of COVID-19. The report includes an updated analysis of 15 major economies around the world, addressing the different timings of the impact of the crisis on consumer confidence.

Despite a dip, overall global consumer confidence stood at a near-record high through mid-February. In the first quarter of 2020, the Index decreased slightly to 106 from a historic high of 107*. A reading above 100 is considered positive, indicating that there were slightly more optimistic consumers than pessimistic ones globally. As the survey was conducted in the first half of February, the Index does not reflect the global spread of the virus since March.

“Obviously, the reading for the early stages of Q1 does not reflect the huge impact of the global pandemic on consumer confidence,” said Bart van Ark, Chief Economist of The Conference Board. “Strong labor markets and solid household balance sheets in many markets may have cushioned some of the initial blow to consumers. However, as we have also reviewed more recent metrics, including The Conference Board Consumer Confidence Index® for the US, which point at very rapid declines in March, it is unlikely that earlier strengths can offset the bigger impacts as the crisis evolves.”

Additional takeaways from the report include:

The drop in confidence and ensuing recovery will depend on each market’s containment measures and policy response.
• Vast differences in government infrastructures for dispensing immediate aid means that governments with more nascent wage and income support policies could face difficulties as they implement financial relief. Examples include:
o Germany, France, and Italy: Despite strict containment measures halting economic activity across Europe, well established wage subsidy and job retention programs in Germany, France, and Italy that keep businesses afloat and workers employed may make consumer confidence more resilient than in other markets in the longer term.
o US, UK, and Canada: Newly developed wage and income support programs may struggle to dispense consumer aid in time to bridge gaps in spending and bolster confidence.
o Emerging Markets: In Brazil, Mexico, and India, factors including job losses, falling incomes, and a general lack of a social safety net will weaken household consumption and consumer confidence for a longer period.
• In addition to the needed infrastructure to effectively dispense government aid, the severity of lockdowns also plays a role. For example, South Korea, reporting some of the earliest signs of dampening consumer confidence due to COVID-19, didn’t enact economically crippling lockdowns or mass layoffs. Those avoidances may lead to a faster rebound in confidence than in other markets.

“While certainly helpful, the policy actions being taken in most economies – even wage subsidies for employers and direct cash handouts for workers – will inadequately sustain spending and buoy consumer confidence in the short term,” said Elizabeth Crofoot, Senior Economist at The Conference Board. “Coupled with escalating fears about continuing everyday activities, and second-wave outbreaks, we anticipate significant declines in consumer confidence across all regions through at least the second quarter of 2020.”

Globally, consumer confidence was on strong footing entering the pandemic.
• Consumers’ increasingly positive outlook on their personal finances primarily propped up confidence both globally and in all regions. But with already waning optimism about job prospects and spending intentions prior to COVID-19, solid household balance sheets in many markets at the onset of the pandemic have only temporarily lessened the initial impact on consumers.

As the amount of COVID-19 cases started to escalate, consumers reported personal health as their number-one concern, surpassing worries about the economy that were previously top of mind.
• Out of the 63 markets surveyed in February, 49 markets (78 percent) saw a rise in health concerns.
• The temporary displacement of health over economic concerns was especially prominent in Asia-Pacific and Europe. At the time of the survey, those regions faced the largest outbreaks of COVID-19.

In the coming months, a worldwide domino effect will cause significant declines in consumer confidence.
• Government lockdowns to contain the COVID-19 pandemic and the drying up of consumer spending have been the catalysts of a domino effect that is well underway: as job losses from shuttered businesses reduce incomes and stress household finances, consumer demand will continue to weaken, further destroying jobs and stable sources of income. Those losses will then weigh on personal finances and further curb spending intentions.
• These consequences form a downward spiral that will continue in the months ahead, decreasing consumer confidence. How quickly these dominos—spending, jobs, and personal finances—fall, especially in countries implementing shutdowns, will determine how fast consumer confidence drops across specific global markets.

*Survey Note: Data collection during the first quarter of 2020 excluded China due to the country’s restrictive COVID-19 containment measures. For comparative purposes, had China also been excluded during the fourth quarter of 2019, confidence globally would have risen from 105 in 2019 Q4 to 106 in 2020 Q1, and from 119 to 120 in Asia-Pacific.

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About The Conference Board
The Conference Board is the member-driven think tank that delivers trusted insights for what’s ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.

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Conference Board commentary on national employment; 4/16/20

By Gad Levanon, Head of The Conference Board’s Labor Markets Institute

–About 22 million: That’s the total number of initial claims for unemployment in the past 4 weeks. The number of initial claims for unemployment in the week ending April 11 — shown in this report — was 5.2 million.

–The national unemployment rate could reach 20 percent: That’s because we can expect the number of jobless claims to remain very elevated in the coming weeks. While states that implemented lockdowns earlier may see a drop in claims, states with more recent lockdowns will still see large numbers.

–Most of these layoffs were likely in less-educated jobs: Most pink slips likely went to manual services occupations including restaurant and hotel workers. So for that reason, the rise in the unemployment rate is likely to be larger for less-educated people. That trend marks a total reversal from what was taking place before the pandemic, when less-educated workers enjoyed a larger drop in unemployment than more-educated workers.

–The big question: What will the economy and labor market look like once these restrictions are lifted in the coming months? We can expect the unemployment rate to drop after May, but to remain in double digit territory through the end of the year.

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National new home permits and starts; March 2020

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