V-Shaped Economic Rebound in Q3 to Usher in More Mature Phase of Globalization
Nancy R. Lazar is head of economic research and founding partner at Cornerstone Macro, which provides economic research to institutional clients. She spoke with Thornburg Investment Management about what she believes a U.S. economic recovery will look like in 2020.
Thornburg: When you spoke with us in April, you saw signs of recovery and estimated U.S. third quarter GDP growth at 10% and 4% for 2021. Do those forecasts still stand?
Nancy Lazar: Actually, we are even more optimistic. First, there’s been additional massive global stimulus put in play. Second, there’s clear evidence that that stimulus is making a difference. You see it in the credit market. And last, state economies are starting to re-open.
We saw GDP collapsing, say 25% in the second quarter, and now expect GDP growth will be something closer to 20% for the third quarter, which means a V-shaped rebound, but the recovery will be wavy and longer. We still expect GDP growth at 4–5% next year. I also think you are getting a V-rebound in other parts of the world: we see it Europe, China and Japan.
We’re not off to the races when it comes to things getting back to normal. There is going to be pain associated with COVID-19, but headwinds have been present in previous recoveries.
Capex Spending in Housing and Technology Will Create Multiplier Effect for Job Recovery.
(U.S. Capex 3/31/98 through 12/31/21 Estimated)
Source: Cornerstone Macro
Thornburg: When will jobs come back and how can policy makers help?
Nancy Lazar: The employment hit has been gut-wrenching, and unfortunately, as is always the case in a recession, the under-educated get hit the hardest.
Our number of unemployed has stopped going up, if not come down slightly. In a recovery, it’s generally true that there is a sector of employment that’s a headwind. This time, it’s going to be the leisure industry and some brick-and-mortar retailers.
We think employment growth will be in technology, construction, both residential and non‑residential, manufacturing and health care. Those four sectors are a huge part of total employment.
Longer term, businesses need encouragement to invest and grow. They will hire and will require services to support them—a key part of helping bring back jobs at the lower end of the spectrum.
Thornburg: How has the COVID-19 pandemic realigned the global economic order?
Nancy Lazar: Economies that don’t have strong domestic economic fundamentals and economies that depend on foreign growth have gotten hit the hardest. Economies that have too much dollar-denominated debt got hit very hard. Economies that are too dependent on commodity prices have gotten hit very hard.
Economies with a fragile domestic backdrop and not enough home-grown economic activity, got hit hardest—Brazil, the Middle East, South Africa, Russia, Italy.
Thornburg: Is globalization dead, then?
Nancy Lazar: It is not dead; it’s matured.
Globalization is disbursement of investment around the world, so all benefit. Other smaller emerging markets economies are benefiting as investment is no longer going to China, because it is not as attractive a place to invest, is a more costly place to invest, and is not a politically PC place to invest.
We anticipate an investment move back to developed markets, including the United States. Middle America is our favorite Emerging Market. We are very positive about onshoring in the United States. I would argue this new mature stage of globalization is healthier for the global backdrop because one country isn’t the sole beneficiary.