- US first quarter GDP weaker than anticipated at -4.8% as job and consumption losses mount.
- Economy deteriorating faster than expected despite the limited viral impact in the quarter.
- Cumulative effect of the shutdown in the second quarter remains chief market concern.
- Dollar could benefit as safety trade may see new life.
Normality disappeared quickly in the US as activity contracted for the first time in five years under the mandatory closure of much of the economy in the Coronavirus fight.
Even though growth in the first two months of the quarter had been estimated at 2.7% the precipitous collapse of the labor market in the second half of the month and the shuttering of many businesses drained an enormous amount of production and consumption from the economy.
Over 26 million Americans have lost their jobs in the last five weeks and another 3.5 million are expected to be added to the unemployment rolls when initial jobless claims are reported on Thursday. This will bring the total job destruction to 18% of the 164.6 million member labor force.
Even with unemployment insurance the loss of consumer spending in the consumption dominated US economy threatens to bring on the first recession since the financial crisis over a decade ago.
More than two dozen US states are planning to lift some of their commercial and social restrictions in the next two weeks but the number of people who will be recalled to work is unknown. Many small businesses, who employ the bulk of the recently fired workers, have been starved of cash flow and with few credit resources may have folded.
The most important question is can the economy be opened fast enough to avoid a second negative quarter and a recession?
Equities, bonds and the dollar
Stock extended their pre-market gains with the Dow futures rising 345 points minutes after the figure’s release up from 100 points earlier. Treasury yields were slightly higher with the 10-year gaining four points to 0.599% and WTI rose to $14.49 from $14.33.
The US dollar has been the trade of choice in the currency markets since the pandemic struck the global economy. With the world’s largest economy contracting 4.8% in the first quarter and the second largest, China sliding 6.8%, the economic and financial uncertainty that must follow will keep the greenback verdant until a path out of the pandemic forest is found.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.