The worst is probably behind us: J.P. Morgan Senior Economist

Jesse Edgerton, J.P. Morgan Senior Economist, joins The Final Round to discuss predictions for what the U.S. GDP will look like in the coming quarters and his forecast for unemployment numbers amid COVID-19.

Video Transcript

SEANA SMITH: Well, we had two pieces of economic data that got investors' attention this morning. First was on new home sales, which is better than expected. And we also got a pretty positive reading on consumer confidence. It rose in May after falling for two straight quarters. Now, as earnings season begins to wind down, we know that the COVID-19 news, like the stuff that Angelie was just talking about, and also this economic data will become the big focus for investors going forward.

So for more on this, I want to bring in Jesse Edgerton, a senior economist at JP Morgan. And Jesse, you're out with a new note this morning. And it's interesting, because even though we got this better-than-expected data, you're less confident in the 2021 growth prospects. You also said you're revising expectations for unemployment. So I'm curious what the reasoning is for your slightly more pessimistic outlook.

JESSE EDGERTON: Sure. I would honestly say that I think the virus is evolving a little bit worse than we had expected as of a couple months ago when we wrote down those forecasts. I think we had in the back of our mind at that time that we would go through a period of lockdown, which we did, and we would sort of emerge from that lockdown into a world where the virus felt like it was under control and people could start getting back to normal, going about their business the way they normally would. You know, not immediately. We always thought it would take some time.

But you know, we sort of thought that the conditions would be in place for people to start going back to movies, and restaurants, and the mall, and things like that. And I think when we look around now, it just doesn't feel like we're at that place. Right? We still see the virus spreading in some places. You know, certainly the number of new cases and new deaths is falling in New York every day.

But those new case counts are rising in many places, like Texas, and Wisconsin, and my home state of Minnesota. So it just doesn't feel like we're kind of out of the woods and people can stop worrying about the virus and start heading back to restaurants and things like that.

MYLES UDLAND: And you know, Jesse, it feels like just kind of going through my inbox every day and looking at Twitter, it feels like the conversation right now with the US economy is, is the worst behind us? And I guess I would ask, are you guys getting that question? I mean, it doesn't really sound to me like you think it's the right time to even be asking that, but it certainly feels like that's where the narrative has gone. I don't know if you would agree or disagree with that.

JESSE EDGERTON: Well, I actually would say that the worst is probably behind us in terms of the actual decline in activity. You know, retail sales falling, industrial production falling, things like that. We are starting to see things like the number of air travelers going through US airports and the number of diners being tracked by OpenTable at restaurants starting to move up.

The lows were more like in late March or into April, and things have been edging up for a little while. But that increase has just been very tentative. You know, even in places like Texas and Georgia that have been lifting their stay-at-home orders, the number of people going to restaurants is still down 2/3 from where it was last year at this time. So I think even in those places, you're just still seeing people not yet confident enough to really bounce back.

RICK NEWMAN: Hey, Jesse. Rick Newman here. So one of the things that's interesting about those states you're referring to, where the case count is ticking up, is they are staying open. We haven't heard any state say, oops, this is getting out of control again. We need to start closures. So as you're looking ahead one month, two month, three months, are you anticipating that there will be some forced closures or that these case counts will just continue to tick up with people still going out?

JESSE EDGERTON: I would say we've hesitated as economists to try to do too much forecasting on what exactly the virus is going to do and how people are going to react to it. But I would say overall, what we're kind of envisioning here now over the next couple of months is this patchwork of policies of different stringency levels across states, and just a world where you know, you can't really be confident that the virus is gone.

You can't really travel to other states if you don't know what policies are in place there or whether you should be worried about the virus. You can't start freely going back to restaurants, and movie theaters, and things like that. You know, so I just feel like we're sort of entering this new normal where the virus is not growing explosively like it was at one point, but it's also not disappearing. It's just going to be something that people need to worry about, and it's going to keep affecting people's behavior, I think.

AKIKO FUJITA: Jesse, I'm wondering how politics plays into your risk assessment. You know, on the one hand, you've got the president today pointing to the market saying, the transition to greatness has started, that it's time for all the states to reopen. And then yet you're hearing in some of these states that have reopened about pushback these business owners are getting from people who are saying, I'm not going to wear a mask. I don't have to wear a mask, which will only complicate this ability to bring down the number of transmissions.

So you know, as an economist, you don't look at things politically, per se, but there's definitely a political element, I imagine, to the recovery picture.

JESSE EDGERTON: Yeah. I mean, I think that's contributing to our view here. You know, there has been kind of a patchwork of state-level policies in the absence of a cohesive federal policy reaction. And as a result, you know, some states are opening up more than others and then people are reacting to those reopening in different ways across states, absolutely depending, in part, on their politics.

And so I think all of this is just contributing to this feeling that we're in this kind of soup of different policies and different behaviors by different people that are going to leave a lot of people hesitant to start going outside and going back to these businesses.

SEANA SMITH: Jesse, over the past few months, it's been all about the Fed. It's also been all about the fiscal stimulus that we have gotten. My question to you is, do you expect more help from policymakers ahead? And if so, what exactly are you looking for just in order to get that catalyst that we need moving forward?

JESSE EDGERTON: I think we almost certainly will get some more fiscal stimulus here. Our new forecast has the unemployment rate staying above 10% at least through the end of the year in this new world where people are afraid to go back to restaurants and things in large numbers. And I just think that is definitely going to be a recipe for more fiscal support of at least some kind.

You know, early in this process, the Republicans and Democrats kind of managed to compromise on giving both sides what they want by funding Republican priorities, like small businesses, at the same time that they funded Democratic priorities, like state and local government assistance. So I would kind of guess that at some point, they'll put their differences aside again and be willing to write some checks.

Hard to know exactly how it's going to come out, but I think there will be demand, certainly, for extensions of the unemployment benefit programs, additional funding for small businesses, and additional funding for state and local governments.

SEANA SMITH: All right. Jesse Edgerton, senior economist at JP Morgan, thanks so much for taking the time.

JESSE EDGERTON: Sure. Thank you.