COVID-19 Infects the U.S. EconomyBy Thomas F. Siems, Ph.D. CSBS Sr Economist & Director of Research

CSBS Economic Insights WebcastApril 7, 2020

COVID-19 Infects the U.S. Economy

How/When did COVID-19 Infect the U.S. Economy?

Are We in a Recession?

What’s Being Done to Help the Economy?

When will this End?

COVID-19 Infects the U.S. Economy

How/When did COVID-19 Infect the U.S. Economy?

Are We in a Recession?

What’s Being Done to Help the Economy?

When will this End?

A Quick Look Back to late 2019

In Conclusion…

• US Economy growing moderately• GDP ~2.0%; Unemployment ~3.6%; Inflation ~1.9%; wages rising ~3.0%

• Recession Ahead?• Manufacturing weaker; Labor quality/trade/global concerns; Yield

curve flat; Depends on consumers, confidence, and BOBs• Banking

• Consolidation continues; Banks appear to be in good shape• The Fed

• Dual mandate success; Interest rate changes are following market expectations

FROM THE CSBS SCOTTSDALE MEETING, DECEMBER 2019

FROM THE CSBS SCOTTSDALE MEETING, DECEMBER 2019In Conclusion…

• US Economy growing moderately• GDP ~2.0%; Unemployment ~3.6%; Inflation ~1.9%; wages rising ~3.0%

• Recession Ahead?• Manufacturing weaker; Labor quality/trade/global concerns; Yield

curve flat; Depends on consumers, confidence, and BOBs• Banking

• Consolidation continues; Banks appear to be in good shape• The Fed

• Dual mandate success; Interest rate changes are following market expectations

BOLTOut of

BLUEthe

COVID-19 Infects the U.S. Economy

How/When did COVID-19 Infect the U.S. Economy?

Are We in a Recession?

What’s Being Done to Help the Economy?

When will this End?

March Madness Cancelled: US Recession BeginsShanghai Disney Closed

NBER Recession Definition--- "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales"

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-3

-1

1

3

5

7

9

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016Annu

alize

d Pe

rcen

t Cha

nge

U.S. GDP Growth

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Jan-

67

Jan-

70

Jan-

73

Jan-

76

Jan-

79

Jan-

82

Jan-

85

Jan-

88

Jan-

91

Jan-

94

Jan-

97

Jan-

00

Jan-

03

Jan-

06

Jan-

09

Jan-

12

Jan-

15

Jan-

18

Unemployment Insurance Weekly Claims

Record high before 2020: 695,000 in October 1982

3,307,000 for week ending March 21, 2020

Financial Crisis high: 665,000 in March 2009

Data Source: U.S. Department of Labor

6,648,000 for week ending March 28, 2020

80

85

90

95

100

105

110

115

120

Daily Index of Consumer Sentiment(7-day moving average)

Source: Morning Consulthttps://morningconsult.com/form/econ-intel-global-consumer-confidence-tracking-demo-request/

March Sadness Begins

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-1

0

1

2

3

4

5

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Weekly Economic Index

March 21, 2020

Data Source: Federal Reserve Bank of New York

Source: Lewis, Mertens and Stock, “Monitoring Real Activity in Real Time: The Weekly Economic Index,” Federal Reserve Bank of New York Liberty Street Economics, March 30, 2020

122 121 123

91

-50

-30

-10

10

30

50

70

Q2 2019 Q3 2019 Q4 2019 Q1 2020

CBSI and Uncertainty

BCu MPu RBu OEu CSu PRu FVu CBSI

Data Source: CSBS

-50

0

50

Q2 2019 Q3 2019 Q4 2019 Q1 2020

Business Conditions

BCp BCn BCi

-50

0

50

Q2 2019 Q3 2019 Q4 2019 Q1 2020

Monetary Policy

MPp MPn MPi

-50

0

50

Q2 2019 Q3 2019 Q4 2019 Q1 2020

Regulatory Burden

RBp RBn RBi

-50

0

50

Q2 2019 Q3 2019 Q4 2019 Q1 2020

Operations Expansion

OEp OEn OEi

-50

0

50

Q2 2019 Q3 2019 Q4 2019 Q1 2020

Capital Spending

CSp CSn CSi

-50

0

50

Q2 2019 Q3 2019 Q4 2019 Q1 2020

Profitability

PRp PRn PRi

-50

0

50

Q2 2019 Q3 2019 Q4 2019 Q1 2020

Franchise Value

FVp FVn FVi

122 121 12391

-50

0

50

Q2 2019 Q3 2019 Q4 2019 Q1 2020

CBSI & Uncertainty

BCu MPu RBu OEu

CSu PRu FVu CBSI

Data Source: CSBS

Data Source: CSBS

117

1811

39

5136

7731

3219

6141

7439

6627

6356

3543

1963

4527

3634

1447

1042

3231

1319

03

2353

320

BC Q4BC Q1

MP Q4MP Q1

RB Q4RB Q1

CS Q4CS Q1

OE Q4OE Q1

PR Q4PR Q1

FV Q4FV Q1

Community Bank Sentiment Index2019 Q4 and 2020 Q1

Positive Neutral Negative Uncertain

Index9760

108

Index

69

7178

138

177128

109

158121

CBSI Q1:12391

IndexIndex

66

IndexIndexIndex

117

CBSI Q4:

-37

-49

-21

+6

-37

-32

-40

-44

Data Source: CSBS

80

90

100

110

120

130

140

Q2 2019 Q3 2019 Q4 2019 Q1 2020

CBSI by CSBS District

Northeast Midwest South Great Plains West

0% 20% 40% 60% 80% 100%

Oil and Gas

Tourism

Restaurants

Retail

Agriculture

Manufacturing

Consumer

Construction

Prof. Services

Health Care

CBSI: Outlook for Economic Segments

Negative (1) Slightly Negative (2) Neutral (3) Slightly Positive (4) Positive (5)

Rating

3.61

3.19

2.31

1.97

2.76

2.41

2.70

3.14

2.49

2.86

Data Source: CSBS

1

2

3

4

2/26 - 3/3 3/4 - 3/10 3/11 - 3/17 3/18 - 3/24 3/25 - 3/31

Aver

age

Wee

kly

Ratin

g (1

=Neg

ativ

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d 5=

Post

ive)

Bankers' Outlook on Sector Performance Declined During MarchSource: CSBS Community Bank Sentiment Index (CBSI) for Q1 2020

Health Care

ConsumerManufacturing

Restaurants

Retail

Construction

Agriculture

Oil and Gas

Tourism

Prof Services

Data Source: CSBS

↓ 0.62

↓ 0.16

↓ 1.00

↓ 1.00

↓ 1.17

↓ 1.07↓ 1.65↓ 1.01

↓ 1.58↓ 1.45

Change from first week in March to last week in March

0% 20% 40% 60% 80% 100%

Local Economy

State Economy

National Economy

Global Economy

CBSI: Expected Impact from Coronavirus Outbreak on…

Exteremely Negative (1) Very Negative (2) Somewhat Negative (3)

Not So Negative (4) Not at All Negative (5) Unsure

Rating

3.20

2.93

2.51

2.05

Data Source: CSBS

1

2

3

4

2/26 - 3/3 3/4 - 3/10 3/11 - 3/17 3/18 - 3/24 3/25 - 3/31

Aver

age

Wee

kly

Ratin

g (1

= Ex

trem

ely

Neg

ativ

e an

d 5=

Not

at A

ll N

egat

ive)

Bankers' Outlook on COVID19's Impact on Economic Activity Declined During March

Source: CSBS Community Bank Sentiment Index (CBSI) for Q1 2020

Local Economy

State Economy

US Economy

Global Economy

Data Source: CSBS

↓ 1.26

↓ 1.30

↓ 1.09

↓ 0.85

Change from first week in March to last week in March

COVID-19 Infects the U.S. Economy

How/When did COVID-19 Infect the U.S. Economy?

Are We in a Recession?

What’s Being Done to Help the Economy?

When will this End?

Federal Reserve Interventions• Lowered administered rates• Quantitative easing• Repo market injection • Swap lines with other Central Banks• Facilities to provide liquidity, credit and funding

• Commercial Paper, Primary Dealer, MMMF,

State/Municipals, FIMA Repo

COVID-19 Infects the U.S. Economy

How/When did COVID-19 Infect the U.S. Economy?

Are We in a Recession?

What’s Being Done to Help the Economy?

When will this End?

How/When Does the Pandemic End?• Herd Immunity• Flatten the Curve• Establish Protections• Loosen Restrictions • Rebuild/Remake

Three Economic Scenarios (Conference Board)• v-Shaped Recovery (mild)…May reboot• V-Shaped Recovery (modest)…Summertime comeback• U-Shaped Recovery (severe)…Fall recovery (or beyond)

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Q1 Q2 Q3 Q4

GDP Growth Scenarios, Annualized QoQ rates

v-May reboot V-Summer U-Fall

v-May reboot V-Summer U-FallPeak Cases mid-April May June/July

2020 GDP -1.6% -5.5% -6.0%Peak Unemployment 8% 15% 15%

Guide to the Great Unknown• Increased Personal Awareness• The New Patriots • Tech Disruption Alters Work and Play (again)• Bigger Government• Looking Inward

Questions?

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