Reading the economic tea leaves has become harder than ever in a coronavirus world where all the omens are bad.
The U.S. will offer its regular update on the state of the economy on Wednesday and is expected to say that gross domestic product shrank 4 percent or more in the first quarter.
That’s a big slowdown from 2.1 percent growth logged at the end of last year and a sign of just how potent the COVID-19 shutdown is — throwing a $21 trillion economy into reverse even though the shutdown only came during the last couple of weeks of the three-month period.
“This is just an appetizer,” said Erik Lundh, senior economist at the The Conference Board, of first-quarter GDP figures. “The steak dinner is coming in the second quarter in terms of the GDP number and contraction.”
The nonpartisan Congressional Budget Office last week forecast a 12 percent second-quarter decline.
That’s a cataclysmic drop of 40 percent on an annual basis — although the hope is that the shutdown doesn’t have to stretch on long enough to be measured on an annual basis, but in weeks or months.
But as long as millions are hunkered down at home and businesses stay shut, the economic numbers are not going to say much more than things are bad — or terrible.
And so economists are taking their cues from the doctors.
“The most important data are the epidemiological data, the number of new cases, the number of deaths, the number of tests,” Lundh said. “That’s the kind of stuff that matters right now, these are leading indicators.”
There is at least some good news there, with the curve flattening in the hot spot of New York and some states are tentatively reopening some businesses. But even so, the global number of confirmed COVID-19 cases soared past three million with nearly 210,000 deaths, according to Johns Hopkins University.
Beyond tracking the outbreak itself, Lundh said he is keeping a close eye on the weekly jobless numbers, which have shown 26 million people rushing to the unemployment rolls.
The current thinking is that a lot of those people who have filed for unemployment are in industries that are highly susceptible to social distancing, like retail or travel.
But Lundh said if large numbers of people keep applying for unemployment support “it means the economic damage has spilled over the floodway” and workers in seemingly safe industries are losing their jobs as a kind of knock-on effect.
Eventually, the world will reopen and retail can come back to life and economic forecasting — and everything else — could start to return to something closer to normal. But there could be a false start or two given the uncertain psychology of consumers who have been locked down and under stress.
Scott Hoyt, senior director of consumer economics at Moody’s Analytics, said, “We need to be careful not to put too much stock into the first few weeks and maybe a couple of months when things reopen because you’re going to have a lot of pent-up demand.”
Consumers might come out of the shutdown with a shopping list and plans to get out and spend.
“That’s likely to be temporary and then we’re going to find ourselves back in the soup,” said Hoyt, noting that after that first rush, consumers will reassess their finances and adjust accordingly. “The question is going to be, ‘Where are we going to settle?’”
On Monday at least, Wall Street investors were feeling more bullish about retail and sent shares of many companies higher amid hopes that plans to loosen some social distancing regulations would help the sector bounce back.
Among the biggest gainers were Kohl’s Corp., up 17.7 percent to $18.60; Abercrombie & Fitch Co., 16.6 percent to $10.61; RealReal Inc., 15.3 percent to $11.66; PVH Corp., 15.2 percent to $47.64; American Eagle Outfitters Inc., 13.9 percent to $7.79; Nordstrom Inc., 13.8 percent to $20.27; Gap Inc., 12.7 percent to $7.79; Simon Property Group Inc., 11.1 percent to $57.19; Capri Holdings Ltd., 10.9 percent to $13.86, and Tapestry Inc. 10.3 percent to $15.05.