This Week's State Of The Economy - What Is Ahead? - 31 July 2020

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Aug 11, 2020

This Week's State Of The Economy - What Is Ahead? - 31 July 2020

U.S. - While Risk Remains, The Worst Appears to Be Behind Us

  • The resurgence in COVID-19 in much of the Sun Belt appears to have topped out, although cases are rising faster in some smaller mid-Atlantic states and in parts of Europe, Asia and Australia.
  • Real GDP declined in line with expectations, plunging at a record 32.9% annual rate.
  • Jobless claims rose for a second consecutive week, and continuing claims also increased.
  • Consumer confidence faltered as the second wave of COVID-19 infections triggered a pullback in economic engagement.

 

Global - Q2 GDP Data Shows Impact of COVID-19

  • As expected, Mexico’s economy contracted significantly in the second quarter. The effects of COVID-19 and collapse in oil prices weighed heavily on the economy in Q2, while a lack of fiscal policy support from the current administration adds challenges to Mexico’s growth outlook going forward.
  • GDP data were released across Europe as well, with the German economy recording a third straight quarterly contraction. Eurozone GDP performed roughly in line with expectations, recording a large decline in Q2. Despite the large contraction, we are optimistic on the Eurozone economy’s prospects for the second half of the year.



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This week brought glimpses of market stabilization after weeks of turmoil. Although consumers seem unfazed by the uproar, tighter credit conditions coming down the pipeline will likely weigh on growth.

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Retail sales kicked off the week with a bang, rising 17.7% month-over-month in May. The increase was larger than every single one of the 74 forecast submissions.

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On Wednesday, the May CPI data showed that consumer prices were unchanged in the month, the first flat reading for the CPI since July 2022.

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European activity is surging. Germany and Italy are leading the way, but France is close behind despite an ongoing rise in cases. The Google data are a bit outdated, but are hard to reconcile with today’s weak Eurozone services PMI figures.

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I’ll wish you a Happy Earth Day anyway. Don’t expect a card this year. While the Earth continues to thankfully revolve at a steady rate, rising mortgage rates appear to be slowing residential activity

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higher interest rates and inflation appear to be weighing on manufacturing and construction, yet service sector activity remains fairly resilient.

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In the immediate fallout after the lockdowns in the early stages of this pandemic, there was a lot of discussion about the shape of the recovery.

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More job seekers also lifted the participation rate to 62.4% and thus easing some tightness in the job market even as payrolls expanded.

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Sales of existing homes fell 2.2% to a 5.38 million-unit pace in September, but sales and prices were still up enough in the quarter that they will add solidly to Q3 GDP growth.

June 2020 Economy At A Glance

The Fed expects to hold interest rates near zero through the end of this year, perhaps well into next year, and maybe even into ’22.


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