The recovery will take many forms, not one – Mish Talk
No support for V-shaped recovery
Please consider a FiveThirtyEight report on the form of the takeover.
In partnership with the Global Markets Initiative at the University of Chicago Booth School of Business, FiveThirtyEight asked 34 quantitative macroeconomic economists what they thought about a variety of topics around the coronavirus recession and recovery efforts. the most recent surveywhich was conducted from June 19 to 22, echoed many predictions of the last lap – although there are also some new wrinkles in their predictions.
when we first asked As for the shape of the recovery, 58% of respondents thought the trajectory of future U.S. gross domestic product looked like like a Nike swoosh — a sharp decline followed by a long, slow recovery. This time, however, a consensus has formed around a slightly different form: an inverted radical (i.e. a mirrored version of the square root symbol).
Twelve of the 17 economists who predicted a swoosh in our survey at the end of May switched to the reverse radical this time, leaving just five respondents to stick with the swoosh in this round of the survey. (And no economist swooshed in, another sign that other models better match the trajectory of this economic recovery.)
worst case scenario
Economists now favor the Reverse Radical but that’s an oversimplification, even if reasonably accurate on average.
What is happening now is unlike the Great Recession or any recession that preceded it.
Compare the lead chart to this one.
The uneven recovery detail
Can there be a recovery without a decline?
Non-store retail sales (think Amazon) accelerated and never looked back. The worst case scenario for online shopping is if the current uptrend slows down.
There is nothing to salvage, and there won’t be either.
Grocery stores grew during the recession, but as people returned to restaurants, sales declined. Nevertheless, grocery store sales are well ahead of the previous trend.
This change will be permanent as more people work from home and therefore drive less and eat out less.
Department stores are in a world or hurt and the trend is unequivocal. The best case scenario is a U on the trendline before the breakout resumes.
What about housing?
Housing has positive and negative factors at play, both short and long term.
- People have to live somewhere. The population continues to grow.
- There is a bit of pent-up demand. People were forced to postpone moving plans when Covid suddenly hit.
- Interest rates are low and the Fed will keep them that way.
- Jobs, jobs, jobs
- The attitudes of millennials and Gen Z are quite different from those of their baby boomer parents toward housing and family formation.
Aging baby boomers want to downsize. There is no one to sell their mansions to.
But baby boomers will eventually die.
The children who will inherit the houses will each receive a large sum of money and may then decide to buy a new house or a condo.
I believe that attitudes are the key, in the long run. They can change. In the short term, it’s all about jobs.
For 8 weeks, continuing claims are at or near the 20 million mark. These claims are eaten at the state level.
There may be as many as 10 million people receiving federal assistance.
These applicants are not going to buy a house. Most weren’t candidates anyway, but some were. And others who weren’t affected at all may have had second thoughts.
There has been a huge surge in mortgage applications recently, but this was a reversal of housing’s slump in April and May, two of the busiest months of the year.
Throw away those busy month apps in June and July, and then seasonal adjustments make the rebound look bigger than it actually was.
Consider credit risk
To discuss this, please see The new dilemma for banks: they can’t tell who is a good risk.
Each sector will have its own shape
On average, I think economists are right with the idea of the reverse radical.
However, there are a small number of big winners coupled with a growing threat of bankruptcies and so much industry variance that the averages are misleading.
Multiple shapes is the right idea.
These reopening reversals are what caused more than 40% of economists to worry about a worst-case scenario.