U.S. 2020 Economic Conditions, the Pandemic, and Where We Are at the Beginning of June 2020

This is the first in a series of posts focusing on year-to-date economic conditions in light of the impact of the COVID-19 pandemic and continuing government economic recovery legislation. Stay tuned…there’s more to come. See Part 2. See Part 3 See Part 4.

1. The U.S. Economy in 2020 and COVID-19

A. Continued Economic Success as the U.S. Began 2020

In January 2020, the S&P 500 Index began the year at 3,231 and the Dow Jones Industrial Average (DJIA) at 23,538. The NASDAQ Composite (NASDAQ) opened at 8.973 with all three equity indices recording near record highs, after having a banner year in 2019. While the yield on ten-year Treasuries was 1.88%, the Stoxx Europe 600 Index advanced, as every sector finished in the green. Gauges in Hong Kong and Shanghai jumped more than 1% after the People’s Bank of China said it would increase the supply of inexpensive funding to banks, in line with market expectations. The U.S. and global economy generally enjoyed robust health

The average 30-year conventional residential mortgage rate was 3.72% while U.S. 30-year Treasury bond yield was 2.33% and three-month Treasuries were at 1.54%.

The Federal Open Market Committee (FOMC), in its meeting on December 11, 2019, forecasted that the Personal Consumption Expenditures (PCE) core inflation rate in the U.S. would average at 1.9% in 2020, then increase to 2% in 2021 and stabilize at this level through 2022. The U.S. January 2020 core inflation rate was 2.3%, and unemployment was 3.6%, down from 4% in January 2019. At January 31, the Dow Jones Industrial Average increased to 28,859; a 22.6% increase from December 31. The U.S. economy appeared vibrant.

As the month came to a close, it was not readily apparent that a historic pandemic, COVID-19, would soon encapsulate the world, and according to the CDC, in the U.S. claim in excess of 100,100 deaths and 1.7 million cases by 3:10pm EST on May 29, 2020.

As the U.S. was approaching the end of January, the Centers for Disease Control and Prevention (CDC) confirmed the first COVID-19 case in the U.S. on January 21. According to the CDC, the COVID-19 outbreak appeared initially contained, and through February, however then accelerated rapidly (see CDC Report dated March 27, 2020, 2020; 69(12);343-346).

B. COVID-19’s Existence in February

As cited in the above CDC report, although not yet then known, from January 21 through February 23, 2020 a total of 14 cases of coronavirus disease (COVID-19) were diagnosed in six U.S. states, including 12 cases (symptoms) in travelers arriving from outside the U.S. An additional 39 cases were identified in persons repatriated from affected areas outside the U.S., and by mid-March, transmission of the virus that causes COVID-19 had accelerated, with rapidly increasing case counts indicating established transmission in the U.S. 

According to the CDC, U.S. community transmission likely began in late January or early February 2020, after a single importation from China, followed by multiple importations from Europe. Until late February, COVID-19 incidence was too low to be detected by emergency department syndromic surveillance for COVID-19-like illness. As the spread of COVID-19 cases expanded, for the week ended February 28, 2020 the U.S. economy experienced the economic symptoms of COVID-19.

As February began, the DJIA had gained 22% over the January 2 close; however, by the end of February it declined over 11% to 25,409. Meanwhile, the S&P 500 closed the month at 2,954 and 8.5% below the January opening of 3,231. The NASDAQ closed February at 8,567, erasing 2020’s gains and down 4.5% from its December close.

U.S. Treasury bond yields also experienced significant decreases as stock markets fell, and investors moved money from stocks to the safety of bonds. On February 28, the ten-year Treasury bond closed the week at its lowest level in 100 years: 1.13%. The 30-year Treasury bond yield ended the month at 1.65%, down 3% for the year.

As Treasury bond yields often lead mortgage rates, at the end of February mortgage rates were at their lowest levels in three years. The Freddie Mac Primary Mortgage Survey released on February 27 reported mortgage rates for the most popular loan products, with yields as follows: the 30-year fixed mortgage rate average at 3.45%, the 15-year fixed rate average at 2.95%, and the five-year ARM average at 3.2%.

When the year began, the U.S. unemployment rate was 3.6%, and the number of unemployed people was 5.8 million. Both these numbers were slightly changed at January 31; however, the percentage of the unemployed who had been jobless for 27 weeks or more was 19.2% in February,  and by the end of the month the unemployment rate increased to 4.4%. The February unemployment climate in the U.S. became dramatically severe compared to December 2019.