GDP Outlook

Base Coronavirus Scenario

Severe Coronavirus Scenario

Moody’s Base scenario forecasts a very severe but brief coronavirus recession; deeper and longer in the Severe scenario. Q2 US GDP is forecast to contract more than 30% in the Base scenario, more than 40% in the Severe scenario (annualized rates). Both scenarios envision the US economy restarting in Q3, but differ in recovery speed and duration. GDP growth re-stabilizes by mid-year 2021 in the Base scenario, but recovery is slower through 2021 in the Severe scenario.

Sources: US Bureau of Economic Analysis (BEA); Moody’s Analytics

Employment and Wages

Base Coronavirus Scenario

Severe Coronavirus Scenario

Base and Severe employment paths are similar to the GDP trajectories for both scenarios. In the Base scenario, employment losses end in Q2 with steady job recovery starting in Q3. A more severe and longer recession may prolong job losses through most of 2021. A longer recession increases the likelihood that laid-off workers will not return to their old jobs.

Sources: US Bureau of Labor Statistics (BLS); Moody’s Analytics

Unemployment rates hover above 8% through 2021 in both the Base and Severe scenarios. A severe unemployment spike in Q2 is likely to ameliorate in Q3, but sub 4% unemployment rates are not forecast to return. Layoffs, actual and potential, are likely to suppress wage increases in affected industries. Wage growth had been running above 3% annually from 2017 through 2019, but is likely to fall in 2020 and 2021.

Sources: US Bureau of Labor Statistics (BLS); Bureau of Economic Analysis (BEA); Moody’s Analytics; NCCI

Financial Markets

Aggressive Fed Credit Easing and a Flight to Safety

Selected US Treasury Yields, %

US Treasury yields dropped a percentage point during March, driven by aggressive Fed liquidity easing and a flight from risk assets. Spreads for high-grade corporate and muni bonds gapped out in March as their nominal yields fell less than Treasuries. The S&P 500 stock index dropped 24% from its February close to a low of 223.7 on March 23, but rallied back to 279.0 by Easter.

… Push Treasury Yields Close to Zero

US Treasury Yields, Constant Maturity, %

Sources: US Department of the Treasury; Federal Reserve Board of Governors; Bloomberg

Medical Inflation

Indices of Medical Inflation

Annual Growth, %

The Personal Health Care deflator (PHC) is forecast by the Centers for Disease Control and Prevention (CDC). The CDC’s forecast reported here does not include potential effects of the coronavirus pandemic. An alternate indicator of medical inflation, the health care component of the Personal Consumption Expenditure index (PCE-HC), is forecast by Moody’s Analytics. Both forecasts show medical inflation around 2% per year, gradually increasing through 2021.

Medical Inflation: Around 2% per Year, Gradually Increasing

Annual Growth, %

Sources: Centers for Medicare & Medicaid Services; Bureau of Economic Analysis (BEA); Moody’s Analytics