“We are in recession. Full stop. No question,” Richard Branch, chief economist with Dodge Data & Analytics, says of the U.S. economy in the COVID-19 era. (Go here to register and see the webinar on demand.)
Dodge is a 120-year-old construction-industry data keeper, and the company knows the important questions for construction businesses now are “How deep? What does the recovery look like?”
With the curve of COVID-19 cases starting to flatten, and projections for hospitalizations and deaths beginning to ease, Branch says the most unique assumptions undergirding his construction forecasts for 2020 include:
- 3 – 8 million confirmed U.S. infections
- Peak of infections in May
- Infections begin to abate in July
- 1.5% fatality rate
- 10% hospitalization rate
Dodge’s pre-coronavirus 2020 forecast was for U.S. gross domestic product to grow 1.7% – slowing from 2.3% in 2019.
Our current reality of 360 million people in 42 states under stay-at-home orders reduced expectations for first-quarter GDP to a 2.5% contraction and an 18.3% plunge in Q2.
“Assuming infections peak in May and begin to abate in July, and the economy begins very slowly to return to normal, we get a boost in the second half,” Branch says. “A good chunk of people that lost their jobs in the first half of the year will get rehired in the second half.”
He forecast the initial thrust, following a pair of disastrous quarters, to be 11.0% growth is Q3.
“But it takes a lot to restart a service economy,” Branch cautions. “That’s why you see growth in the fourth quarter slow down to 2.4% – still above the long-term potential rate for the U.S. economy.
“It will be a bit of a slog here in the back half of the year in terms of getting the economy back up; getting the unemployment rate back down.
“We are expecting that there will be a Phase 4 stimulus program,” Branch adds. “Some will be geared to relief for people and businesses who fell through the gaps in Phase 3.
'We are expecting that there will be a Phase 4 stimulus program,' Branch says. 'There's strong support for infrastructure spending as well, in Phase 4.'
“There’s strong support for infrastructure spending as well, potentially, in Phase 4. We’re not expecting something until late-Q3-Q4, but depending upon the size and the magnitude of a potential Phase 4 program, that could certainly alter those Q3 and Q4 growth rates.”
So Dodge forecasts U.S. GDP to contract 2.2% in 2020, but then rebound in 2021, growing 2.7%.
“I would offer, based on our assumptions, that that growth rate in 2021 is back-loaded,” Branch says. “So the first part of the year we’ll call maybe 2.3% – 2.4%. But once we get into the back half of the year, we’re looking at maybe mid to high 3s that could extend into early 2022 as well.”
He expects the key variables that could impact this forecast are the track of the virus and potential for any fiscal stimulus.