What is a V Shaped (Or Checkmark) Recovery?
Happy Hump Day All!
I have been seeing a lot of our local market experts ‘blogging’ lately. But we’re they are doing is literally taking someone’s blog and copying. Yes, they are at least giving credit (thankfully), but there is no original thought, interpretation, or opinion. We have been striving to take data you may have seen elsewhere, and put it into context that you can interpret and better understand. As always, I welcome my profession to strive to do better, and provide valuable information to all of us. This is about sharing information, and expressing ones self.
So many people have talked about what our recover is going to look like. Just last week, I discussed unemployment, and how we will be back to ‘full employment’ in 2021 or 2022, but 2020 is going to hurt. We have also touched on Housing Values, sales, etc etc etc. Today, I want to talk about the economy in General, as measured in our Gross Domestic Product (GDP). For those of you that may have missed this part of Economics 101, Gross Domestic Product is defined:
“Gross Domestic Product (GDP) is the monetary value of all finished goods and services made within a country during a specific period. GDP provides an economic snapshot of a country, used to estimate the size of an economy and growth rate. GDP can be calculated in three ways, using expenditures, production, or incomes.”
Basically, you add up all the goods (stuff we MAKE) and services (stuff we provide like Attorney fees, etc) and add it ALL together. We measure it on a regular basis, but definitely look at it Quarterly. An economy is defined as being in a Recession differently, but for the most part when we see a decline in overall spending and production. However, it’s often calculated after the fact… we know we’re definitely hurting now, spending less, making less, etc. But our Quarter does not end until June, so while we’re living in a Recession now, it won’t be defined officially, until we’re done with the Quarter.
How quickly we recover from this is going to be what we are all focusing on. Just like I discussed with Unemployment last week (view here), many Economists far smarter than I am are predicting a significant decline in Quarter 2 (April - June) followed by a recovery in Quarter 3 (July - September) and Quarter 4 (October - December). The chart I have for you today (yay, more charts!) is another one from one of our favorite sources, Keeping Current Matters, a site from the esteemed Steve Harney. Credit goes to them for compiling the data. The chart shows 2020 and with GDP, as estimated by four of the largest Investment Banks in the United States; Goldman Sachs, JP Morgan, Morgan Stanley and Wells Fargo. Looking at the chart, we are actually showing a NEGATIVE GDP for Q1, mostly because of the very weak March. From there, we will see an UGLY plummet in Quarter 2. In fact, both Morgan Stanley and Goldman Sachs anticipate the biggest decline in the history of calculating GDP for a quarter. I know it’s scary, and never looks good to look at. But let’s face the facts. The country for the most part has shut down. Spending is decreased. It’s simple math.
But here is where there is hope. Take a look at what the economists expect in the second part of the year. Growth. Continued Growth. While 3 of the 4 anticipate positive growth for Q3 (Wells Fargo is the lag), all 4 show positive growth in Q4. And if you look at the charts, take a look at the line drawn. It’s a sharp drop down, but a quick jump right back up! Hence, the “V” Shaped Recovery, or “Checkmark” recovery as I like to call it as well. A sharp decline followed by a sharp increase. A V Shape can be considered an optimistic approach. Ugly ride down, but quick ride up. And I think we can all agree that the sooner we return to ‘normal’ the better, right?
So what other types of recovery are there? Using the Letter references, we also see recoveries called “U Shape” and “L Shape”. Again, not very creative names, but the perfect description. A U Shape, as you can imagine, has a longer bottom than a V shape. Our 2008-2012 slow down was more of a U Shaped, or even, some would consider an “L” Shape. An L is a much longer drawn out Recession, with a much slower recovery. Thank you to the website, Seeking Alpha (SeekingAlpha), for providing the chart. The link brings you to their analysis, who believe we’re heading into a longer downturn, or a “U Shaped” Recovery. However, even they believe this shouldn’t drag much into 2021!
Again, we don’t love reporting the bad news, but this isn’t, or shouldn’t be a surprise to anyone. Getting through this, according to a lot of smarter people than me, is going to happen sooner than later. This is not The Great Depression. We will have an historical drop and are starting to see it as we write this, but the recovery period should be quick, filled with plenty of job growth and spending! What are YOUR Thoughts?
-GZ