Atlanta Fed: GDP Could Plunge 42% Due to Virus Lockdowns

The Atlanta Fed’s GDPNow tracker is forecasting a 42.8% decline in economic growth for the April-to-June period.

That’s a sharp slide from last week’s 34.9% tracking and comes amid dismal jobs and consumer data.

The drop would easily be the worst in the post-World War II era, CNBC explained.

The Atlanta Fed GDP news came on the same day as the Federal Reserve warned that the financial sector faces "significant" vulnerabilities due to the coronavirus pandemic, as businesses and households grapple with fragile finances for the foreseeable future.

Meanwhile, the Atlanta Fed's GDPNow can be volatile and is not a forecast per se but rather a running estimate based on real-time data, CNBC said. However, it is only somewhat worse than other prominent estimates.

Goldman Sachs, for instance, recently projected growth to fall 39% for the quarter. The firm, though, sees a big bounce on the other side, with Q3 rising 29%. The New York Fed’s GDP Nowcast is tracking at 31.05%.

However, government officials are bracing for dismal numbers in the near future.

“The economy is essentially still in freefall because of the shutdown, there is no question about that and the pandemic contraction in 2Q is going to be very difficult,” top White House Economic Advisor Larry Kudlow recently told Fox Business Network.

Kudlow said on ABC’s “This Week” that a “glimmer of hope” in the recent dismal April jobs figures was that about 80% of those tossed out of work were on furloughs or temporary layoffs. Still, May would bring “very difficult numbers,” he said.

However, despite being critical of how long the U.S. remained in lockdown amid the coronavirus, former Trump campaign economic adviser Stephen Moore is confident in a fall recovery.

"It will be a slow process," Moore told "The Cats Roundtable" on 970 AM-N.Y., per The Hill, "but you've got to get going.

"I do believe that by the end of the summer we're going to see a very swift kind of recovery for the fall."

Moore laments the progressively slow return to business, particularly in the bigger-budget blue states, is setting up a "tough summer," due to lingering coronavirus infection fears.

"Customers are still a little bit afraid to go outside," Moore told host John Catsimatidis. "People are nervous. They're worried about their health. Every day you see more and more people venturing out. You see more and more people getting on the job.

"It's going to be a tough summer . . . as we try to get our feet back on the ground, but I believe that by the end of the summer we could start to see a real recovery."

Moore is an economic adviser on the White House coronavirus task force, helping the administration get the economy rolling again safely.

In its latest report on financial stability, the Fed said the global pandemic imposed sweeping risks. While policy actions from the Fed and others have helped bolster the economy, and the banking system has withstood the initial downturn, the report warned of major risks if the pandemic proves lengthy or more severe than anticipated.

"The COVID-19 outbreak poses severe risks to businesses of all sizes and millions of households," the central bank said as it ran down a list of trouble spots that could arise depending on how long the virus persists and keeps the economy on its heels.

It is the latest signal from the Fed that the recovery from the COVID-19 crisis will be arduous. Since the downturn began, Fed officials have noted with some relief that the financial system was not the source of the current problem, and with some help from the central bank had continued functioning.

Friday's report noted the financial stresses that could build if the crisis persists, and households and businesses continue to be deprived of wages and revenue.

In short, no one from hedge funds to major banks to households would be immune from the risk they might default on debt, be forced to sell off assets, end up in bankruptcy, or see the value of assets dwindle.

It won't happen tomorrow, and the report noted that steps taken to shore up the financial system after the last crisis created buffers that, alongside emergency steps taken by the Fed, have avoided the worst.

"Forceful early interventions have been effective in resolving liquidity stresses," Fed Governor Lael Brainard said in an emailed statement.

But she also highlighted a key worry at the central bank: that what might start as a cash crunch could spiral into something worse. Among highly indebted businesses, she said, "we will be monitoring closely for solvency stresses...which could increase the longer the Covid pandemic persists."

Few if any parts of the economy are safe. The Fed noted for example that both commercial office buildings and farmland held high valuations relative to the income produced, possibly setting the stage for a drop in price. That could mean stress for property owners who have borrowed against their property, or for the financial institutions that hold the loans.

"Financial sector vulnerabilities are likely to be significant, in the near term," the Fed said. "The strains on household and business balance sheets from the economic and financial shocks since March will likely create fragilities that last for some time."