Is the U.S. Economy Headed for Another Great Depression? An Economic Update from Dennis Pelak

As we move into the second half of 2020, the U.S. economy is starting to see an upturn, but is it sustainable? Let’s review some of the major data points for July, as COVID-19 has had some very visible and devastating effects on the economy:

2nd Quarter Gross Domestic Product (GDP)

The U.S. economy in July had its worst performance in its long history. Records date back to 1947. Worst. Performance. Ever.

The Bureau of Economic Analysis reports Real GDP fell at a 32.9 percent annualized rate. A record-making contaction. The quarterly decline compared to a year ago is 9.5 percent. This is unprecedented.

Key Points

Consumer personal expenditures declined only 1.79 percent in goods, but declined substantially (14.65 percent) in services. The difference between those two categories makes sense. For example, consumers spent roughly the same amount on goods: things like groceries and tangible goods, but curbed spending on services like haircuts, manicures and massages.

Consumer spending on restaurants and hotels was down 40 percent year-over-year.

Not all spending was down, however. Spending on recreational goods (like campers and RVs) soared, with an increase of 15.33 percent year-over-year, and spending on recreational services (like ball games, concerts or amusement parks) plummeted 54.13 percent.

Non-Profit and Commercial Spending Increased

In the non-consumer segment, spending by non-profits increased 51.53 percent year-over-year.

Commercial spending on computer hardware increased by 9.73% and software increased 6.13 percent year-over-year.

Economic analysts and forecasters at Atlanta Fed GDPNow estimated on Aug. 3 that the economy will bounce back strong, growing up to 19.6 percent.

A screen capture from GDPNow Aug. 3 that predicts an astonishing 19.6 percent GDP growth in the next three months.

Economy vs. Stock Market Performance

An interesting chart from Kessler Investment Advisors compares a current pattern to a pattern seen before the Great Depression. According to Kessler Investment Advisors, the S&P 500’s rally in the last four months is very similar to the first bear market rally in the Great Depression.

While the economy continues to struggle with growth since COVID-19, the stock market continues to increase daily. Why is this happening? Is the stock market anticipating significant economic growth ahead, or could it be an indication of trouble ahead?

A compelling chart from Kessler Investment Advisors that compares the current COVID-19 Economy to the Great Depression. The pattern is unique.

Dennis Pelak is a retired Financial Services executive who has studied economics and statistics for more than 40 years. He updates this page monthly with his opinions regarding the economy. He can be reached by email at economics@localnewsreader.com.

By Dennis Pelak

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