Are We Entering A Global Economic Recession?
There is no doubt we are living in unprecedented times. COVID-19 has undoubtedly thrown a curveball in all of our plans, at least in one way or another. My question is, are we in the beginning of another major economic recession? For those of us economic nerds, you may know recessions typically hit between Labor Day and Halloween, and I believe we are about to see this repeated yet again.
Recently released GDP results from the Commerce Department show an annualized 32.9% contraction in Q2, which is the sharpest drop in modern American history (equivalent of $2.2 trillion). **Of note, on a non-annualized basis, the Q2 GDP drop was 9.5%. As countries across the globe begin to release their own results, the outlook is just as gloom. Germany also reported a record quarterly decline of 10.1%.
On July 30th, the Labor Department reported more than 1.4 million first-time jobless claims; the second weekly rise (indicating a possible further uptick in unemployment). Add to the fact that as of July 31st, the additional $600 unemployment benefit officially expired for millions of Americans, and as of this writing, there is no congressionally approved replacement.
While those stats are interesting, they are all in the past. Unfortunately, the future isn't looking any brighter. According to FOX News, four in ten retailers have filed for bankruptcy thus far in 2020. Also, in the first seven months of this unforgiving year, more major retailers and restaurant chains have filed for bankruptcy than in all of 2019. Dunkin' Donuts recently announced the closing of 800 stores (8% of their total) by the end of 2021, and they are in no way alone.
Ascena Retail Group operates roughly 3,400 stores. They filed for Chapter 11 on July 23rd, and announced the closure of at least 1,100 stores. And the higher-paying corporate jobs are not as secure as they once were either. L Brands (Victoria Secret and Bath & Body Works) will be laying off about 15% of their corporate workers, as well as Macy's Inc. announced they will be eliminating 3,900 corporate and management positions. Even our nation's largest employer, Walmart, will be cutting "hundreds" of corporate jobs and "reorganizing" 4,750 stores.
Other economic-driving industries are at risk as well. September first, the airline industry can begin laying off employees, as their obligation to the CARES Act will have been fulfilled. United Airlines has announced possible layoffs of 36,000 employees, American Airlines has noted 25,000 employees, and 17,000 Delta employees have already agreed to receive buyouts or early retirement packages. In addition, Ford and General Motors have announced both layoffs and plant closures in an effort to reduce costs. Manager Magazin (not a typo) reported that Daimler may cut as many as 30,000 jobs as the company aims to save $2.3 billion.
Sure, the value of gold has hit a record high, and the value of the USD has seen a decline recently, but there must be some indicators we are not on a direct path of another recession...right? After all, U.S. economic activity improved in May and unemployment fell to 11% in June. And, the New York Times reported an average of 63,806 cases of COVID per day in the U.S. for the past week, a decline of 3% from the average two weeks ago, so there is some light.s
Clearly, I am predicting an economic downturn in the near future. I have started to increase my cash on hand in preparation for it, although I still hope I am wrong. What do you see? Are you as pessimistic as I am? Is all this hype over nothing? Has your investing strategy shifted in any way?
If nothing else, hopefully this was at least somewhat of an interesting read.