In mid March the President ordered the shutdown of the economy to fight the virus, he was hoping or very optimistic it would be a short shutdown. The effect of the shutdown has sent millions of Americans to collect unemployment benefits and economists to look forward and they do not see pent up demand.
In an article by Lucia Mutikani of Reuters, Chris Rupkey, chief economist at MUFG said if the economy fell this hard in the first quarter, with less than a month of pandemic lockdown, the second quarter is going to be complete disaster.
GDP declined at 4.8% annualized and was the steepest rate since the 4th quarter of 2008. Households cut back on purchases of motor vehicles, furniture, clothing, footwear, transportation, hotel and restaurant services.
Previous to falling, the economy was growing at 2.1%. US Congress has approved a fiscal package of $3 trillion and the Federal Reserve has cut interest rates to near 0 and greatly expanded its role as banker of last resort.
Looking forward, economists are looking for recession numbers, as consumer spending which accounts for 2/3’s of the US economy fell at 7.6%.
Linking to dividend paying stocks, in a growing economy everything looks good, but in a recession cash flow is king. It is easy to make a mistake in a growing economy because likely you will still make money, however in a downturn, doing your homework is important. Why did you buy the stock besides to make money? going through the check list of cash flow; profitability, paying dividends; customers and thinking long term matter.
There are more questions than answers, till the next time – to raising questions.