Two More Surveys Point to a Sluggish Recovery

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Economic Report Monitor #35
June 2nd, 2020

The start of June continues with two major issues broaching the financial world forcing a hugely uncertain future for businesses across the country. Now almost three months old, the concern of the COVID-19 outbreak continues as active case counts cool, and reopening processes take their shape. However, markets have quickly shifted to digesting the sudden civil unrest caused by protests against the murder of George Lloyd by a Minneapolis police officer. Peaceful protests intertwined with pockets of looting in major cities continue into their second week. The stock market still rose with the S&P 500 up just over 0.8%. Other than conversations about the impact of these two increasingly economic issues, economic reporting was quiet with no marquee indicators in view. Nevertheless, other economic reports continue to describe the situation in place of them.



The Ag Economy Barometer from the Purdue Center for Commercial Agriculture was released today for the month of May. The survey considers responses from 400 US agricultural producers' in a telephone survey towards the end of the month. The composite index of the survey fell at 103, slightly higher than the 96 in April. Both current conditions and future expectations saw slight bounces; although the current conditions index remains much lower at 83 while the expectation index is at 112. Farm capital investment saw a nice rebound from 38 to 50 in a more normal range but still below regular near-term lows. Overall, the Ag Economy Barometer mirrors a lot of manufacturing PMIs recently where the industry is in a sharp contraction but safely off the lows. Farm owners believe that this will heavily affect profitability, and they expect a need for additional support from the government.



Another survey on the effects of COVID-19 was released by FiveThirtyEight and IGM Forum which interviewed experts on their economic outlook. When questioned on when they see a recovery starting, most experts forecast the first post-COVID-19 positive QoQ real GDP growth in 2020 (54% in Q3 and 23% in Q4). The remaining 23% choosing 2021 mostly opted for the first half of 2021 with 16% choosing Q1 or Q2. Despite a majority of participants choosing an earlier recovery, a surprising 58% indicated that they thought a Swoosh-shaped (a sharp decline followed by a slow rebound) recovery was most likely. This, of course, contradicts what a lot of optimistic commentators have said including what the Federal Reserve first posited.



The sluggish relay will likely be accompanied by high unemployment, the experts say, as participants suggest a 36% chance of unemployment finally dropping below 10% beyond 2020 Q2 and a 61% chance that unemployment doesn't cross below the 10% threshold until 2021. The delay in growth and employment will likely mean the Federal Reserve will keep its hand steady beyond the COVID-19 crisis. Respondents put the probability of an increase in the Fed Funds rate in 2022 or before at just 39% reflecting the consensus view that a recovery will be sluggish. In fact, some think the sluggishness may have a slight chance, 12%, of making the Fed push rates negative. Loose monetary policy like this could be especially possible if growth bucks the FOMC's hopes of a quick rebound and the committee feels blindsided.

While these surveys don't communicate any kind of reality like economic data does, they support the hypothesis that the economic recovery will be slow which coincides with manufacturing PMIs that hint at the same thing. Of course, no judgments can be made based on forecasts alone, but there seems to be a building consensus that businesses are not rebounding hard off the lows. That could be a damaging reality check to the stock market when real data points are released.

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