Print

Opening Statement from the August 2020 Intelligent Investor (part 1)

Originally published on August 5, 2020

U.S. Economy

Although the pace of job losses has declined significantly from record-highs made in April, jobs continue to be shed at record pace. As of August 2, more than 50 million jobs have been lost as a result of the hysteria surrounding the coronavirus pandemic. As COVID-19 cases have resurfaced, many states and cities have once again shut down restaurants, bars, churches and other public venues. As long as officials prevent normal economic activity, more jobs will continue to be lost. Once again this underscores the importance of developing an effective vaccine.

As a reminder, Q1 GDP growth came in at -5.0% (final revision). But we stated since March that Q2 would be the big number to watch for. Recently, Q2 GDP data were released. Not far from our estimates, Q2 GDP growth came in at a record low of -32.9 percent marked by a huge drop in consumption. The collapse in consumption was largely expected due to the shuttering of much of the service economy.

As bad as the collapse in Q2 GDP was, it was better than consensus estimates from the street of 34.9 percent. As a reminder, our upper end estimate for Q2 GDP growth from May was -35 percent. We raised our estimates to 35 percent to 45 percent in June while stating that we really had very little confidence in these estimates. Keep in mind that the data is from an early release and is thus subject to further revision in coming months.

Q3 GDP growth is certain to represent a significant improvement from Q2 data. According to the latest estimates from the Atlanta Federal Reserve, U.S. Q3 GDP is expected rebound to 11.9 percent. But this estimate is based largely on expectations of reopening the economy.

Due to resurgence in COVID-19 infections, we are now seeing closures of restaurants, bars and other establishments in key states such as California, Texas and Florida. If this trend continues it is likely to contain any rebound in growth from Q2 data. In short, based on what we see currently, we believe the estimate from the Atlanta Fed is quite optimistic.