Record-breaking drop in GDP

The Bureau of Economic Analysis announced today that seasonally adjusted U.S. real GDP was 9.5% lower in the second quarter than it had been in the first quarter, which they reported as a decline at an annual rate of 32.9% (0.9054 – 1 = -0.329). That is four times as large a quarterly decline as anything since the BEA began reporting quarterly GDP in 1947, and represents a 10 sigma (10 standard deviations) event.
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Guest Contribution: “Lasting Damage of the Pandemic”

Today we are pleased to present a guest contribution written by Ayhan Kose and Franziska Ohnsorge, respectively Director and Manager in the World Bank’s Prospects Group. The findings, interpretations, and conclusions expressed in this blog are entirely those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent.

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Covid-19 Fatalities, Excess Fatalities, Forecasts

From CDC, Atlantic/Covid Tracking Project, and IHME:

Figure 1: Weekly fatalities due to Covid-19 as reported to CDC for weeks ending on indicated dates (black), excess fatalities calculated as actual minus expected (teal), fatalities as tabulated by The Covid Tracking Project/Atlantic (dark red), IHME forecast (light red), all on log scale. Source: CDC 7/29/2020 vintage, Covid Tracking Project/Atlantic accessed 7/29/2020, IHME forecast of 7/22/2020, and author’s calculations.

Two observations: (1) the unofficial count is rising; (2) recent weeks’ (about a month’s worth) CDC data are subject to severe undercounting, so inferring recent trends on the basis of CDC data is not advisable.

From week ending February 29th through the week ending June 27th, the cumulative CDC fatality tally is 127.3 thousand. Cumulative excess fatalities is 164.8 thousand, implying an additional 37.5 thousand Covid-19 fatalities above the official tally over this period.

Collapsing Confidence in Public Health/Macroeconomic Management

Consumer sentiment declines; economic policy uncertainty on the rise; real interest rates declining. It’s all in the graph below.

Figure 1: University of Michigan consumer sentiment (top), Economic Policy Uncertainty Index (middle), TIPS 10 year constant maturity yield, % (bottom). U Mich sentiment is preliminary for July, EPU in July is thru 7/25/2020, TIPS in July is thru 7/24/2020. Source: University of Michigan and Treasury via FRED, 

Congressional Research Service: “Fiscal Policy and Recovery from the COVID19 Recession”

From the summary of the document, which reviews the literature and current macroeconomic state of play. Some key findings are germane to the current intra-Republican party debate over how to proceed with the current recovery package. I know it is the triump of hope over experience to think they will accede to expertise, but here goes.

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