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Monthly Economic Update

For the month ending May 31st, 2020

The stock market rally that began in late March has persisted despite the continued coronavirus pandemic, trade tensions with China, and the protests and riots occurring in cities throughout the country. Investors are hopeful for an economic recovery, partly fueled by all 50 states now taking steps to reopen, as well as developments for a potential COVID-19 vaccine.


However, several economic indicators show signs that this rally might not last, and we could see a second dip. 


Recently released data from the Bureau of Economic Analysis (BEA) show that GDP fell 5% in the first quarter of 2020, after increasing by 2.1% in the fourth quarter of 2019. Although GDP is a key indicator of economic activity, the frequency of the estimates and the lag in the release date of the estimate make it less useful during such volatile times. Additionally, the first quarter of 2020 only includes a few weeks of the economic shutdown. A real-time estimate of the GDP growth rate can provide better insight into the current state of the economy. The Federal Reserve Bank of Atlanta’s GDPNow forecast is a running estimate of real GDP growth. The latest GDPNow forecast projects GDP to fall by nearly 53% in the second quarter.

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economy. A forward-looking economic indicator can help us gauge where the economy is headed in the coming months. The Chicago Fed’s National Activity Index (CFNAI) is a composite index made up of 85 monthly indicators of national economic activity. Research has shown that

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the CFNAI frequently provides early indicators of business cycle turning points and can identify potential inflation. A zero value for the index means that the economy is expanding at its historical trend rate of growth, while negative values indicate below-average growth, and positive values indicate above-average growth. The latest CFNAI, released on May 26, is -16.74, down from -4.97 from the previous month. Compared to the Great Recession that ended in 2009, the latest CFNAI figure is far lower.

The Conference Board’s Consumer Confidence Index stabilized in May after a large drop in April. As states continue to reopen and restrictions are

lifted across the country, consumer spending should pick up. Stimulus checks and increased unemployment benefits have helped consumers’ finances—at least for now. The next few months will be more telling about the economic rebound, which will depend greatly on consumer spending.

Between the pandemic and current state of civil unrest, we are living in a very volatile time. While the stock market made a remarkable rebound from its initial drop at the beginning of the pandemic, there are several reasons to believe that this rally will not last. While investors are hopeful for an end to the pandemic, we likely have a long way to go before a vaccine is available to the public. The protests and lootings happening around the country could also make an impact on the markets, either by triggering a second wave of COVID-19 infections or further eroding consumer and investor confidence.

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