The Most Counterintuitive Recession Ever

In February the U.S. economy was humming along nicely with an unemployment rate well under 4%.

Then the pandemic hit our shores.

And the economy was quarantined.

So the unemployment rate spiked to nearly 15%.

Now it’s back down closer to 10% and will probably be under double-digits by this time next month:

When you stop to think about everything we’ve thrown at the economy in 2020, it’s amazing that it’s been able to continue functioning as well as it has.

This whole year has basically been an economic experiment and so many of the outcomes have been counterintuitive to what most people expect from an economic downturn that borders on a depression.

This week the New York Fed released their quarterly data on household debt. The second quarter of the year actually saw household debt fall, which is the first time that’s happened since 2014.

Granted, that’s still a lot of debt but the fact that consumers were able to repair their balance sheets in the midst of double-digit unemployment rates and the worst quarterly GDP print since the Great Depression would have been unfathomable in prior recessions.

Now look at the delinquency status of household debt:

It fell more than 1% from the same period in 2019 and is the lowest on record since 2003.

Now check out what’s been happening to credit card debt (via the WSJ):

Outstanding credit card debt fell from March to June as did the percentage of credit card bills that were past due. No one could have predicted this would happen during one of the worst economic contractions ever.

Or how about the personal savings rate which briefly shot up to well over 30% and remains exceedingly high:

The real estate market has been red hot after an initial slowdown during quarantine:

I’ve spilled plenty of ink on the increase in speculation in the stock market over the past few months but it’s another completely unexpected reaction to a pandemic-induced recession. Here’s a quick summary from CNBC:

TD Ameritrade said Tuesday it added a record 661,000 new funded retail accounts in the second quarter, surpassing the 608,000 new accounts during the first quarter. The broker, which is set to be acquired by Charles Schwab, also reported a record 3.4 million daily average revenue trades — more than four times last year’s levels and 62% more than the prior quarter. 

The major online brokers — Charles Schwab, TD Ameritrade, E-Trade, Interactive Brokers and Robinhood — have seen new accounts and trading activity surge this year during the coronavirus recession. The brokerage industry experienced a flood of new, small investors who saw the market rout and subsequent rebound as a buying opportunity. 

The stock market is also just 1% from all-time highs:

Everyone now knows why these things have happened.

The government flooded the system with money and people either spent it, saved it or invested it in the stock market. You can see the massive personal income spike in April the likes of which we’ve never seen before:

Now look at the enormous jump in wages from the increased unemployment benefits:

With the benefit of hindsight, it’s easy to point out why all of these things are happening. Fiscal and monetary stimulus the likes of which we’ve never seen were unleashed in record time.

But no one was predicting how well these programs would work in terms of their impact on the consumer or the fuse they lit for speculators in the stock market.

There were far more people predicting a repeat of 1929 back in March than 1999 but here we are.

And while the government response hasn’t been perfect1, the fact that the economy in many places is doing much better than anyone could have imagined 4-5 months ago could have far-reaching implications for policy going forward.

It’s possible all of this government spending is a one-off because of the nature of this downturn. This was the first recession in history where everyone knew the exact moment it began. The telegraphed nature and shutdowns forced government officials into action.

But it’s hard to believe voters won’t push for politicians to enact further fiscal rescue packages in the future. If the government can stop a depression in its tracks, why wouldn’t they do so during future recessions?2

No one knows the unintended consequences of these types of policies moving forward but it sure feels like 2020 is going to mark a turning point in the way we look at the response to economic crises in the future.

And regardless of the policy implications, this will go down as the strangest recession ever.

Further Reading:
My New Theory About Future Stock Market Returns

1Perfect was the enemy of good at the time. Speed was more important.

2Obviously, things are still messed up in many segments of the economy and we’re nowhere near out of the woods just yet. There are still millions of people who are unemployed and uncertain about their future. I’m merely marveling at the fact that this is unlike ay recession we’ve ever seen and things could be much, much worse than they are.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.