Ever since the novel coronavirus escaped containment in China earlier this year, Wall Street’s economic projections have been plagued by misplaced optimism. In the first week of February, the investment management company Invesco projected that by summer the U.S. economy wouldn’t merely have recovered from a coronavirus-induced slowdown, it would be growing even stronger than it was before this pesky virus reared its ugly head.
“We’re likely to return not just to normal but above normal because of the U.S.-China trade deal,” Invesco’s chief global market strategist Kristina Hooper told Axios. “We got this really nice boost of sentiment coming from that phase one deal, and literally within a few days of that, global media started reporting on coronavirus.”
Hooper wasn’t alone. S&P Global predicted the outbreak would “stabilize globally in April 2020, with virtually no new transmissions in May.” On February 12, ten days after the New York Times published a report headlined “Wuhan Coronavirus Looks Increasingly Like a Pandemic, Experts Say,” the three major U.S. stock-market indexes hit all-time highs.
On March 13 — two days after the World Health Organization officially declared the coronavirus a global pandemic — JPMorgan projected that the U.S. economy would shrink 2 percent in the first quarter and 3 percent in the second. Goldman Sachs, meanwhile, predicted 0.7 percent first-quarter growth, followed by zero percent growth in the second three months of the year.
Since then, JPMorgan revised its GDP estimates to negative-4 percent in the first quarter and negative-14 in the second — and then to negative-10 and negative-25, respectively. Goldman’s growth projections have similarly plunged to negative-6 percent and negative-24.
This context seems relevant to two new, dissonant developments:
Economists at the Federal Reserve Bank of St. Louis projected Monday that job losses from the coronavirus recession would reach 47 million and push America’s unemployment rate to 32.1 percent — more than 7 points higher than its Great Depression–era peak.
All three major U.S. stock indexes closed up 3 percent that same day, while JPMorgan predicted the pandemic-induced market rout’s worst days were “probably” already over.
The St. Louis Fed’s projection is just a rough estimate, and comes with significant caveats. For one, the study was largely conducted before last week’s stimulus bill was passed, and thus, does not account for its effects. The report also did not attempt to project the number of Americans who would stop seeking work out of discouragement, thereby technically dropping out of the labor force and disappearing from the headline unemployment number.
Still, there’s reason to think its catastrophic prediction is in the right ballpark. Last week, initial jobless claims surged to a record-eviscerating 3.3 million, and economists expect that figure to come in above 2.6 million this week.
It’s perhaps conceivable that the Federal Reserve can keep corporate America so flush with cheap credit, the stock market could avoid hitting new lows for the year, even as unemployment in the U.S. surges to “higher than the Great Depression” levels. But given Wall Street’s unblemished record of wishful thinking so far this year, it’s hard not to suspect that most every part of our economic life is going to get worse before it gets better.