The economy is already in what will be a short, deep recession and even with a spike in unemployment, consumers are expected to continue to spend, according to a National Association for Business Economics survey.
The 45 economists surveyed by NABE expect the economy to shrink by a 26.5% rate in the second quarter, after a 2.4% decline in GDP in the first quarter. In the second half, they expect growth to turn positive, with an increase of 2% in the third quarter and 5.8% in the fourth quarter.
"NABE Outlook Survey panelists believe that the U.S. economy is already in recession and will remain in a contractionary state for the first half of 2020, as the COVID-19 pandemic severely restricts economic activity," said NABE President Constance Hunter, CBE, chief economist, KPMG.
NABE said the weak labor market will result in a drag on consumer spending, but the economists do not expect personal consumption expenditures to turn negative, since consumers will continue to buy necessary items.
The panelists also expect an average 1.0% annualized growth rate of personal consumption expenditures over the last three quarters of 2020, increasing to a quarterly average of 1.6% growth in 2021. The second quarter is expected to see spending grow by 0.8%, the slowest pace this year.
The economists also expect the unemployment rate to rise to 12% in the second quarter. By the end of the year, the unemployment rate is expected to fall back to 9.5%, and to 6% by the end of 2021.
"The panel is optimistic about a return to economic growth in the latter half of 2020, anticipating an annualized real GDP growth rate of 2.0% in the third quarter," she added. "Despite a sharp deterioration in labor market conditions, the median forecast suggests conditions will improve by the end of the year with support from aggressive fiscal and monetary stimulus, as panelists expect the Federal Reserve to hold steady on near-zero interest rates through 2021."
The economists expect 4.58 million job losses in April's employment report. Separately, some economists upped their forecasts for job losses to more than double that after Thursday's claims report showed another 6.6 million filing for unemployment. JPMorgan, for instance, expects 25 million lost jobs.The NABE survey was taken between April 3 and April 7.
By the third quarter, the economists expect PCE data to show spending grow by 1%, and 1.2% in the fourth quarter. They do not expect it to return to the 1.7% level of the first quarter, 2020, until the third quarter of next year.
The panel's median forecast for the 10-year Treasury yield was to hold at 0.7% through the second quarter with little change in the third quarter. They expect it end the year at 0.9% and rise to 1.5% by the end of 2021.