{"id":52314,"date":"2020-06-11T08:00:29","date_gmt":"2020-06-11T12:00:29","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=52314"},"modified":"2020-06-10T23:52:26","modified_gmt":"2020-06-11T03:52:26","slug":"is-the-v-shaped-recovery-back-on","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2020\/06\/is-the-v-shaped-recovery-back-on\/","title":{"rendered":"Is The V-Shaped Recovery Back On?"},"content":{"rendered":"

Several months, or was it years ago; when the coronavirus began its spread across the U.S., several bullish economists were predicting a \u201cV-shaped\u201d recovery, meaning the expected economic recession would be deep but short-lived. The subsequent bounce-back would be extremely strong so that the 2020 recession would be a mere blip on the chart. That consensus opinion was quickly replaced by talk of a \u201cU-shaped\u201d or even an \u201cL-shaped\u201d recovery, with the economy reeling for months if not years, as the number of deaths escalated along with the unemployment filings as the U.S. economy remained shut down. <\/p>\n

Now it\u2019s starting to appear that maybe the doomsayers were a bit too hasty in their gloomy prognostications. While it\u2019s far too early to predict how things will eventually play out, the V-shaped recovery may actually be a more likely outcome than the more pessimistic scenarios. Certainly, the most recent economic reports, from both the government and the private sector, are already showing a nascent rebound even as many key states \u2013 like New York, California, and Illinois \u2013 remain largely in lockdown mode and only recently started to open up. At the same time, some previous forecasts are being shown to have been overly bearish.<\/p>\n

Probably the biggest surprise to the upside was last Friday\u2019s May employment report, which showed the economy adding 2.5 million jobs, a far cry from the consensus forecast of a loss of 7.7 million, and April\u2019s loss of nearly 21 million jobs. \u201cThese improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it,\u201d the Labor Department said.<\/p>\n

The department also reported that the unemployment rate fell unexpectedly to 13.3%. However, the very next day, it said the number should have been higher by about three full percentage points \u2013 i.e., 16.3% \u2013 due to a \u201cmisclassification error.\u201d Still, that was well below the Street forecast of 19.8% and a big improvement from April\u2019s announced jobless rate of 14.7%, which Labor said was more likely 19.7%. And that error had no effect on the new jobs number, which is based on an actual count, not a survey, as is the unemployment rate.<\/p>\n

At the same time, the number of new unemployment claims continues to slow. The most recent report covering the last week of May came in at 1.9 million, down from 2.1 million the previous week and nearly seven million at the end of March. Granted, too many people lost their jobs due to the forced shutdown and remain unemployed, but the forward trend is positive.<\/p>\n

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There are other signs that the economy has bottomed out. The Institute for Supply Management\u2019s manufacturing index rose to 43.1 in May from April\u2019s 11-year low of 41.5, while its nonmanufacturing index increased to 45.4 from the prior month\u2019s 41.8 reading. Both figures are still well below the threshold of 50 that indicates expansion, but they\u2019re moving higher. Also, on the bright side, the Conference Board\u2019s consumer confidence index and the University of Michigan\u2019s consumer sentiment index both rose slightly in May following sharp declines in April.<\/p>\n

Other statistics show that the earlier bleak outlook may be overly pessimistic. For example, the CARES Act allowed mortgage borrowers to stop making payments for as long as a year \u2013 no questions asked, even if they didn\u2019t have a financial problem \u2013 which not surprisingly many homeowners availed themselves of. Understandably, that created fear that many mortgage companies would be left bankrupt as a result of a wave of defaults.<\/p>\n

Now, according to the Mortgage Bankers Association, the percentage of loans in forbearance increased \u201cby only seven basis points\u201d to 8.53% at the end of May from the previous week, in the words of Chief Economist Mike Fratantoni, with about 4.3 million homeowners in forbearance plans. Both big and scary numbers, but not as worrisome as previously thought. \u201cWith the job market beginning to improve gradually, more homeowners are exiting forbearance, and we are seeing declines in forbearance volume among some servicers,\u201d Fratantoni said.<\/p>\n

Indeed, data firm Black Knight reported that forbearance volumes fell during the first week of June. It also reported that almost 80% of homeowners in forbearance have 20% or more equity in their homes, while only about one in 10 has less than 10% equity or are underwater. The more equity, the less likely they will be to default eventually.<\/p>\n

Let\u2019s also not forget the dramatic rebound in the stock market, which is now net positive for the year to date, even if it hasn\u2019t recouped all of its losses from the late February lows.<\/p>\n

Which, may be why former Goldman Sachs chief economist Jim O\u2019Neill told CNBC last Friday that a V-shaped recovery is still \u201cperfectly possible,\u201d even though \u201cin the past two months, virtually no one has believed that that is possible.\u201d
\nTo quote the late great Tug McGraw, Ya gotta believe.<\/p>\n

Visit back to read my next article! <\/p>\n

George Yacik<\/a>
\nINO.com Contributor - Fed & Interest Rates<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Several months, or was it years ago; when the coronavirus began its spread across the U.S., several bullish economists were predicting a \u201cV-shaped\u201d recovery, meaning the expected economic recession would be deep but short-lived. The subsequent bounce-back would be extremely strong so that the 2020 recession would be a mere blip on the chart. That […]<\/p>\n","protected":false},"author":16,"featured_media":52317,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[15916,15915,4482,6938,2017],"class_list":["post-52314","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-coronavirus","tag-covid-19","tag-economic-recovery","tag-george-yacik","tag-stock-market"],"yoast_head":"\nIs The V-Shaped Recovery Back On? - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"While it\u2019s far too early to predict how things will play out, a V-shaped recovery may actually be a more likely outcome than the more pessimistic scenarios.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2020\/06\/is-the-v-shaped-recovery-back-on\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Is The V-Shaped Recovery Back On? 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