The Atlanta Fed’s GDPNow estimate for Q3 GDP growth is currently running at 30.8 percent on an annualized basis (6.9 percent quarter-on-quarter), which will shatter by a wide margin the prior highest print on record of 16.7 percent registered in Q1 1950.

 

Source: Custer Consulting Group

No V-Shaped Recovery

Even with such robust Q3 growth, the economy will only have recovered around 60 percent of its Q1 & Q2 losses, and real output will still be 4 percent below its Q4 2019 level.

 

Economy In A Holding Pattern

The easy money has been made and the heavy lifting to get the economy “back to even” on a sustained basis may take a year or two or three.

Short-term growth will now largely depend on concerns over a second wave of the pandemic and a new stimulus package as the the massive rescue package is what kept the economy from collapsing after the lights were shut off during, what the IMF has labeled, The Great Lockdown.

The Great Lockdown is expected to play out in three phases, first as countries enter the lockdown, then as they exit, and finally as they escape the lockdown when there is a medical solution to the pandemic. Many countries are now in the second phase, as they reopen, with early signs of recovery, but with risks of second waves of infections and re-imposition of lockdowns. – IMF

 

Once the pandemic passes, there will surely be a short-term burst of economic activity as the massive pent-up demand is unleashed provided, that is hysteresis or the permanent damage to the economy is not too significant.

Watch This [Air]space

We posted last night about our new real-time leading economic indicator and COVID fear gauge, the TSA passenger count.

Thus we now perceive and will use the passenger count data not only as a real-time indicator – using the first derivative or rate of change – of the direction of the economy but also a fear gauge of how the fear of COVID affects consumers’ choices.  As the fear of the pandemic subsides air travel should pick up markedly.

Of course, the overall economy has not been hit as hard as the air travel industry and its rebound has been much sharper. – GMM

The Upshot

The GDPNow quarterly estimate is a dynamic number and will change as new economic data is released. It does, however, have a pretty good track record.

Nevertheless, even if the GDP does come in as strong as estimated, at 30 percent-plus, the economy will have only recovered 60 percent of what it lost in Q1 and Q2.

The Q3 GDP advance estimate is scheduled to be released on October 29th just a few days before the presidential election. We can already hear the crowing from 1600 Pennsylvania Avenue.

The economic illiterati do not understand downside-upside asymmetry, that is if you lose 50 percent, it takes a 100 percent to get back to even.

Prepare your talking points, Uncle Joe.