The economy is 'turning the corner': Economist

Mark Zandi, Moody's Analytics Chief Economist, joined Yahoo Finance's Myles Udland, Seana Smith, Dan Roberts, and Melody Hahm to discuss what the economy will look like as businesses begin to reopen and what the shape of recovery may look like.

Video Transcript

MYLES UDLAND: We're joined now by Mark Zandi. He's the chief economist over at Moody's Analytics. And-- and, Mark, let's just start with, I think, the-- the biggest talking point right now in the economics world, which is, has the US economy indeed turned a corner? So the-- the data has bottomed, but I guess, what does that mean? I mean, we're moving off such a low basis, whether it's retail sales, folks driving, all these different measures. How are you kind of seeing what seems to be this kind of nascent recovery here in the US?

MARK ZANDI: We're past the apex of the shock. We're past the worst of it, and we're turning the corner. So I do think we're going to see much better conditions over the next several months as businesses reopen and all the monetary fiscal stimulus that's been provided helps the economy. But at-- at the end of all that, by, let's say, Labor Day, when most the businesses that are going to reopen have reopened, the economy will still be a shadow of what-- what it was. GDP, if that's our benchmark, will be 2/3 of what it was pre-COVID. Unemployment will still be pretty close to double digits. So we're-- we'll make progress, but we-- we'll have a long way to go before we're back to anything we consider to be good.

SEANA SMITH: And, Mark, when you take a look at the unemployment levels, I mean, lots of the talk now is whether or not the majority of those furloughed workers, whether or not they will be brought back and just the potential economic implications, what's priced in at this point. How are you reading that, and how big of an impact do you think that could be down the line?

MARK ZANDI: I-- I think about half the workers who-- who have ultimately lost their jobs, in peak to trough, that will probably be-- be about 25 million people who've lost jobs. Half of those will come back quickly when-- when businesses reopen. The other half won't and will have to be recovered in-- over subsequent years. It's going to take a while to get those jobs back, probably not until-- and, you know, and this, of course, assumes no second wave and vaccine by this time next year. Under those assumptions, it'll still take by-- till mid-decade to fully recover all of those jobs and get unemployment back to something we consider to be close to full employment.

MYLES UDLAND: And, Mark, I'm curious of your view on the housing market. We've seen a lot of data and anecdata that suggests housing has actually hung in quite well through this period. Is that, I guess, a surprise to you? And how much does that maybe inform your view on-- on what the-- this recovery could look like in the second half?

MARK ZANDI: Yeah, it has been surprising, at least the-- the data we're seeing. I mean, applications for purchasing a-- a home are back pretty close to where they were pre-crisis. Now, of course, those are applications, and some may not get approved. But that's indicative of a much more buoyant market. Home sales are-- are coming back. And I think it does go to the fact that mortgage rates are record lows. I-- I mean, I was just looking. You can get a 30-year fixed rate loan from Freddie Mac at 3 and 1/4%.

And the other thing that's really helped housing out is that a big chunk of the market is dominated by government institutions. So Fannie Mae, Freddie Mac are government-backed. FHA, VA, USAA, they're government-backed. So, you know, 3/4 of all originations are backed by the federal government, so the federal government didn't change its lending standards. So, you know, it made it easier for people to get loans.

And then, of course, the other thing I'd say is that the-- the market-- the housing market prior to the crisis was really kicking into full gear for the first time since the housing boom and bubble before the financial crisis 10 years earlier. So it really felt really good coming into this. So yeah, housing has performed better than I thought, and that does lend confidence to the idea that the economy this summer should, you know, should improve, that we're going to see much better conditions over the next few months.

SEANA SMITH: Mark, I want to get your thoughts just on what we could expect from another stimulus package. And I asked this to Liz Ann Sonders just from the-- from the point of view of what the investor wants to see included. But it was interesting because in your note, you said that you expect political pressure to convince lawmakers to agree to another rescue package, but you went on to say that it will be one closer to a trillion dollars in cost, which is significantly lower than what the Democrats initially put forward. So what do you think, I guess, will be included in this next round?

MARK ZANDI: Yeah, I mean, the $3 trillion House bill that was passed-- I guess it was a week or two ago-- you know, obviously that's the start of the negotiation. The Republicans are at zero. The Democrats are at 3 trillion. So my sense is they'll land somewhere around a trillion. Of that, about half of it, 500 billion, will go to state and local government. Because if they don't-- if state and local governments don't get help-- help soon, very soon, there's going to be continued mass layoffs. So state and local governments have laid off a million workers already, 5% of their workforce, and those are, you know, right down the middle of the income distribution.

I mean, they pay 65k, 70k a year. They're teachers. They're fire, police, emergency responders. You know, these are the jobs that we need. These are the people we need in a crisis. So it's hard to imagine that Congress and the administration aren't going to come to terms on that. And then the other half will be more income support. Because again, even when we come back here in the next few months, we're still going to land in a place with very high unemployment, close to 10% unemployment, and a lot of underemployed people who have lost hours in wages, and they're going to need help.

And particularly if you think about it, on the other side of this, we still won't have a vaccine. People will be very unsure of whether there's going to be a second wave. So all that uncertainty is going to weigh on the economy. So that would be, in all likelihood, another extension of the unemployment insurance benefits, the $600 per week benefit, and perhaps another stimulus checks, but just more cash to-- to hard-pressed households so that they don't cave under the high unemployment that'll exist going towards the end of the year.

MYLES UDLAND: All right, Mark Zandi is the chief economist at Moody's Analytics. Always great to get your thoughts. Thanks so much for joining the program today.

MARK ZANDI: Sure thing. Anytime. Take care.