It is impossible not to marvel at the apparently indestructible gap between the buoyant stock market and the less-than-buoyant real economy of workers, companies and jobs. One must say “apparently indestructible,” because maybe there is some simple and obvious explanation that eludes your correspondent. Otherwise, either the stock market is too high, or the economic outlook is too low. One or both must be wrong.
Just last week, the Organization for Economic Cooperation and Development (OECD) — a group of 36 countries — issued its forecast for the United States through 2021. It is unlikely to inspire much cheering. Acknowledging that much depends on the severity of the coronavirus, the OECD report constructs two scenarios: one that might be termed “pessimistic” and a second that is “more pessimistic.”
Under the “pessimistic” assumptions, the unemployment rate is projected at 11.3 percent at the end of 2020 and the economy (gross domestic product) falls 7.3 percent for the year. Both the unemployment rate and the GDP decline are larger than in any previous post-World War II recession. By way of comparison, the peak monthly jobless rate in the Great Recession of 2007-2009 was 10 percent.
The “more pessimistic” forecast assumes that there is a second wave of coronavirus cases. This delays the economy’s recovery and results in more deaths. In the “double-hit” scenario, the year-end unemployment rate is 12.9 percent, and the GDP drops by 8.5 percent. “The recession risks leaving behind a long-lasting negative economic impact,” the OECD warns. “Policies are needed . . . to help workers and businesses avoid scarring effects and fully recover from the crisis.”
[Washington Post] The stock market and economy have parted ways. It’s a FOMO market now.
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