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Business Economists See First-Half Recession, Second-Half Rebound

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The COVID-19 pandemic has pushed the U.S. economy into a recession in the first half of the year, but a recovery will begin in the second half, according to the consensus forecast of 45 business economists polled by the National Association of Business Economists in early April.

First-quarter growth, adjusted by inflation, is seen declining at a 2.4% annual rate, followed by a 26.5% drop in second-quarter real GDP. In the third and fourth quarter, real GDP is expected to rise 2% and 5.8%, respectively. 

These headline forecasts, however, fail to show a wide disparity among expectations. The range between the five strongest and five weakest forecasts for second-quarter real GDP is -1% to -50%. For the third quarter, the comparable figures are from +2% to -12.6%. 

“The NABE Outlook Survey panelists believe that the U.S. economy is already in recession and will remain in a contractionary state for the first half of 2020, as the COVID-19 pandemic severely restricts economic activity,” said NABE President Constance Hunter, in a statement.

Despite that outlook, the NABE forecast is  more optimistic than many on Wall Street, even though some Street economists participate in the NABE survey. JPMorgan now expects a 40% drop in second-quarter real GDP, while Morgan Stanley is forecasting a 38% decline and Goldman Sachs 34%. 

Wall Street forecasts for the second half of the year, like NABE’s, call for a rebound.

“The panel is optimistic about a return to economic growth in the latter half of 2020,” said    Hunter, who is also the chief economist at KPMG. “Despite a sharp deterioration in labor market conditions, the median forecast suggests conditions will improve by the end of the year with support from aggressive fiscal and monetary stimulus, as panelists expect the Federal Reserve to hold steady on near-zero interest rates through 2021.” 

The panel of business economists expect the federal funds rate will remain at 0.125% — the midpoints in the Fed’s range of 0-0.25% — while the 10-year Treasury note drifts up to 1.5% by the end of 2021 from 0.7% in the second quarter and 0.9% in the fourth.

Their median expectation for unemployment is 12% for the second quarter, falling to 9.5% by year-end 2020 and 6% by year-end 2021.

The weak labor market is expected to slow consumer spending to a 1% annualized growth rate over the last three quarters of the year followed by 1.6% average quarterly growth in 2021.

A decline in consumer spending in March for most products and services other than essential ones pushed the consumer price index (CPI) down 0.4%, its biggest drop in more than five years. Core inflation, which excludes food and energy, fell 5.8%, the first decline in a decade.

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