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COVID-19’s Economic Impact: What do the Indicators Reveal?

By Mohit Oberoi, CFA - Published 6 Months ago. 0 Comment
COVID-19’s Economic Impact: What do the Indicators Reveal?
  • The COVID-19 has taken a toll on the global economy. The forced shutdowns have crippled economic activity across the globe.
  • In this article, we’ll look at some of the recent US economic indicators to gauge the pandemic’s impact on the world’s largest economy.

COVID-19’s economic impact

COVID-19’s economic impact is possibly worse than the health impact. With millions stranded at homes and most parts of the economy shut down, economic activity has come to a halt. Some of the recent economic indicators reveal COVID-19’s economic impact.

Over the last five weeks, 26 million Americans have applied for jobless claims, erasing all the jobs added since the global financial crisis of 2008-2009. While comparisons are being drawn between the two crises, there are several differences between the two. Read How the Corona Crisis Is Different from the 2008 Financial Crisis for more analysis.

The IHS/Markit April flash PMI survey showed that US composite PMI fell to the lowest level ever. However, China’s March PMI was above 50 that shows an expansion in manufacturing PMI.

Durable goods orders

US March durable goods fell by 14.4%. However, the fall was primarily driven by lower orders for vehicles and aircraft. If we look at new orders for nondefense capital goods excluding aircraft, they actually rose 0.1% in March as compared to February. The data were better than expected. The consumer sentiment index came in at 71.8 in April versus 89.1 in March. However, the reading was better than expected.

The IMF expects the global economy to contract 3% this year. If the IMF’s predictions are correct, the COVID-19 would leave a bigger hole in the global economy as compared to the great financial crisis.

Meanwhile, in my view, most of the economic assumptions are built on assumptions that the shutdowns would end in the current quarter. Looking at China’s example, the recovery can be swift after the lockdowns are lifted. That said, there is a risk that the second wave of infections might reoccur as countries ease the restrictions. In that case, all the economic predictions might fail to hold ground.

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