Fed’s George: Coronavirus makes projections more difficult

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The volatility caused by the coronavirus pandemic makes predicting the economy, and hence setting policy, tougher than normal, according to Federal Reserve Bank of Kansas City President Esther George.

“Determining the correct path for policy is likely to be even more difficult than usual given what I expect to be the continued volatility of the incoming data,” George told the Economic Club of Kansas City, Mo., in a virtual appearance. “Indicators are expected to improve in the third quarter even as the level of activity remains depressed. Overall, it might be awhile before the dust settles and we gain insight on whether further accommodation is necessary or not.”

As for the response to COVID-19 on the economy, as states reopen, “we should get more clarity about the impact of the actions we’ve taken, as well as the impact of fiscal stimulus,” she added. ”I am also realistic that the extraordinary uncertainty about the path of the pandemic over the second half of the year and the economic outlook will require a fair amount of patience and wisdom as we navigate the likely long-lasting implications of the coronavirus shock.”

Meanwhile, Federal Reserve Bank of Atlanta President Raphael Bostic expects the second half of 2020 to be “much, much better."

It's difficult to know "what to expect going forward" since "so much uncertainty" exists, he noted on a Zoom call hosted by the Florida Chamber of Commerce.

His is optimistic because “the rebound happened sooner than I expected," based on some recent data.

As for a second wave , Bostic said while he is “concerned,” if people take precautions and follow guidelines, it won't be as big a shock to the economy. “I am worried about a second wave, but if we manage our response, it’s manageable to move forward and get a steady rebound,” he said. “If we do get a second wave, it won’t look like the first shutdown so long as people change their mindset about what they do and how they do it.”

Real gross domestic product fell at an annual rate of 5.0% in the first quarter of this year, according to the final estimate released by the Commerce Department.

The latest read is unchanged from the prior estimate. In the fourth quarter of 2019, GDP grew at a 2.1% pace.

Economists polled by IFR Markets expected a decline of 5.0% in GDP.

Jobless claims
Initial jobless claims fell to a seasonally adjusted 1.480 million in the week ended June 20, from the previous week’s upwardly revised level of 1.540 million, originally reported as 1.508 million, the Labor Department said Thursday.
Economists expected 1.300 million claims in the week.

"Three months into the unprecedented economic downturn ignited by the COVID-19 outbreak, the nation’s job market is mired in uncharted and heartbreaking territory,” said Mark Hamrick, senior economic analyst at Bankrate.com. “The highly elevated but declining levels of new and continuing unemployment claims suggest tens of millions of Americans are still in dire straits."

Continued claims for the week ended June 13 totaled 19.522 million, a decline from the prior week’s downwardly revised 20.289 million, first reported as 20.544 million.

The largest increases in initial claims in the week ended June 13 were in Oklahoma (7,254), Texas (5,047), New Jersey (3,272), New York (1,351), and Louisiana (1,243), while the largest decreases were in Florida (24,013), Maryland (18,188), Massachusetts (14,731), California (14,412), and Michigan (6,543).

"It might well be that the worst of the economic downturn is behind,” Hamrick said. “But the ultimate cure for what ails the economy is linked to medical solutions, such as vaccines which are progressing, but still apparently months away from widespread availability."

Durable goods
Durable goods orders jumped 15.8% in May, Commerce said on Thursday. In April, orders fell 18.1%.

Economists expected an increase of 10.5%.

Excluding transportation, orders increased 4.0% in the month after an 8.2% drop a month earlier, while excluding defense, orders rose 15.5% in May. Economists expected goods orders excluding transportation to rise 2.1%.

“A trade war resulting in retaliation would add insult to injury for a fragile recovery,” said Diane Swonk, chief economist at Grant Thornton. “The manufacturing sector is displaying modest signs of recovery on a month-by-month basis, but demand for durable goods remains sharply lower from the same time one year ago. The manufacturing sector is much safer to reopen than the service sector, given a lower rate of infection and more space on factory floors for social distancing. The only exception is meat processing plants, which have been hit hard by COVID the world over due to close working conditions.”

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Jobless claims Coronavirus Raphael Bostic Esther George Federal Reserve Bank of Kansas City Federal Reserve Bank of Atlanta FOMC Federal Reserve