The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in economic indicators such as gross domestic product (GDP), real income, employment, industrial production, and wholesale/retail sales. Given the recent sharp drop in economic data, we believe we are in a recession. While we anticipate the economy worsening before it gets better, we do not foresee an economic depression. We do expect the stock market to improve once investors begin to anticipate a recovery.
The economic fallout of the COVID-19 pandemic represents a rarity to our economy since it is simultaneously a shock, or an unexpected negative impact, to both the demand and supply sides. For example, one reason that caused the 2008 Great Recession was a sharp drop in both consumer and business spending. Health officials and government agencies continue to tell people to stay home and not go to shopping malls, eat at restaurants, or travel. This has caused a huge drop in consumer spending. Case in point, on the last day of March, 146,000 people passed through TSA checkpoints at domestic airports. On the same day last year, this number was well over 2 million people. Looking at the supply side of the economy, these same guidelines have limited worker travel, closed factories, disrupted supply chains, and impacted companies. For example, Dun & Bradstreet noted in a recent survey that 938 of the Fortune 1000 companies have reported that at least one of its tier one suppliers has been impacted by the virus.
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Commentaries are published by Cetera Investment Management LLC, an SEC registered adviser owned by Cetera Financial Group. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.
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