July 30, 2020
We had the second quarter GDP report this morning.
Remember, we've been following the consensus view and the projections from the Fed models here in my daily note.
Let's take a look at the evolution of those projections …
The consensus view has been running in the down 35% area. The Fed model has been projecting as deep a decline as 54% for the quarter. The official number for Q2 was down 32.9%. So, if we add this to the contraction of 5% in the first quarter, the economic hit from COVID (and the related shutdown) comes in at $2.3 trillion.
You can see the BEA's table above, we have peak in GDP in Q4 of 2019, where the economic output was an annualized $21.7 trillion. And the economy in Q2 produced an annual equivalent of $19.4 trillion of output. The difference is $2.3 trilion.
Now, remember, we have$3.3 trillion in fiscal stimulus, half of which has yet to work through the economy. And the Fed has pumped $3 trillion into the system since March. That’s a total of $6.6 trillion. And it’s estimated that, with the Fed’s other facilities, the Fed could inject up to another $3 trillion+.
So, there's a lot of excess money floating around. The response is bigger than the damage. Unfortunately, that money seems to be funneling to the winners of the lockdown economy. Amazon, Apple, Google and Facebook all put up record numbers in the quarter.
The big question has been, all along, how much excess money will be left in the response, once the economy gets back to full operating capacity? That has always been dependent upon the path of the virus. And as we've discussed here, the data, on that front, look favorable. However, the politics and propaganda at this stage has become, perhaps, a bigger threat.