Unprecedented U.S.
Economic Developments

With job losses exceeding the gains from the last expansion the U.S. economy is in unprecedented territory. The $3.3 trillion fiscal stimulus still may not be enough to halt double-digit contractions.

April 28, 2020
Job losses now exceed gains from the last expansion

Remarkable, if not unprecedented, developments in the economy continued last week. Unemployment claims remained elevated at about 4.4 million and over the last five weeks of available data totaled roughly 26.5 million. Net job gains from trough to peak during the last expansion totaled about 22.8 million. Although employment figures will not likely match up exactly with unemployment claims, claims speak to the severity of job losses. Relative to the peak employment from February, job losses total roughly 17%, or about 1 in 7 jobs. Concerns are increasing that job losses are spreading beyond the leisure and hospitality, healthcare, and retail industries as revenues across businesses plummet. 

Oil futures price falls into negative territory for the first time

In another sign of unpresented disruption to the global economy, oil futures prices fell into negative territory for the first time in history. Effectively, oil producers would pay someone to take physical delivery of crude oil. The massive demand shock due to the global recession occurred during the same time as a glut of discounted oil supply due to a price war, causing the price to collapse and increasing the incentive to store oil for future sale. That resulted in limited storage capacity in Cushing, Oklahoma where physical delivery occurs in the U.S., making it difficult to take physical possession. Consequently, a record amount of oil is sitting in tankers at sea as floating storage. Normally, cheap oil boosts consumer spending and provides a fillip to the economy, but that will likely not occur under lockdown. More likely, cheap oil will restrain private investment in energy and will likely lead to credit defaults and business failures in the energy industry, clear negatives for the economy. 

Government approves additional fiscal stimulus, adding to record total

Congress approved an additional $484 billion in additional stimulus spending. The total includes another $320 billion of added funding for the Paycheck Protection Program (PPP). The bill also includes roughly $75 billion for hospitals, $25 billion to expand COVID testing, and $60 billion for the Small Business Administration’s (SBA’s) Economic Injury Disaster Loan program which aids temporarily distressed businesses. This bill brings the total approved by Congress to roughly $3.3 trillion, a record amount. Though no panacea, the additional funds should continue to help support businesses and employment levels. 

Federal Reserve suspends limits on savings account withdrawals and transfers

Sensing consumer distress, the Fed suspended the limit on the number of savings account withdrawals and transfers. Federal regulations generally limit account holders to six transactions per month, but the Fed eased rules for banks to ensure customers could get their funds if needed. Though savings accounts are typically only used as emergency funds, relaxing the limits could help those who have already exhausted the funds in their checking accounts, particularly the estimated 25% to 30% of consumers that do not possess a credit card. Enabling spending, even if mostly non-discretionary spending, helps support aggregate demand in the economy. 

Economic outlook

These developments likely portend record-setting contraction in economic activity in the first half of the year. First quarter GDP growth will publish this week. We expect a contraction in quarterly growth that could rival the downturn from fourth quarter 2008 and first quarter 2009. During the depths of the Great Recession, growth was contracting at a roughly 4% to 8% annualized rate. We anticipate a more pronounced, double-digit contraction in the economy in the second quarter that will likely set a record. At a minimum, it will likely mark the first quarterly double-digit decline since the first quarter of 1958.