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Sizing Up Economic Prospects

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(Friday, October 23, 2020, 10:30 p.m. EST) The shape of the economic recovery is coming into clearer focus.  Yes, the United States has had a "V-shaped" recovery from the onset of the Covid outbreak in January. However, the right side of the "V" is weakening. A return to the level of prosperity of late 2019 is about 18 months away, while a recovery to the full potential of the U.S. -- in which the unemployment rate drops to 3.5% again -- is at least several years away.

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The 60 economists surveyed in mid-October by The Wall Street Journal reportedly expected a U.S. third quarter growth rate of +28.5% over the rate of the third quarter of 2019. (Though the third quarter of 2020 ended September 30, the actual official growth rate is not yet released.

Their outlook was for a sharp deceleration in the fourth quarter to 4% and settling over the next six quarters, to 3.1% in the second quarter of 2022.

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The consensus forecast in the dotted lines offers better perspective on the shape of the recovery.

The initial recovery from the pandemic was V-shaped but the deceleration is expected to veer the growth rate to the right.

To get back to the $19.3 trillion economy of late 2019, the experts say, will take until the first quarter of 2022 -- 18 months from now.

To make a full recovery -- as if Covid never happened -- will the red dotted line in this chart would have to meet the grey dotted line.  It could be several years off, or longer.

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The Standard & Poor's 500 stock index closed Friday at 3,465.39, a gain of +0.34% from Thursday. That was down -0.53% from a week ago. Since the March 23rd bear market low, the S&P 500 soared to return +43.06%.

The half-point drop was the first weekly loss in a month. With an election days and uncertainty over its outcome, a deceleration to the +4% forecasted growth rate in gross domestic product should be comforting  to the long-term investment outlook. However, stock prices have swung wildly since the coronavirus crisis hit the stock market early this year and volatility is expected in the months ahead.

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This article was written by a professional financial journalist for The Dover Group and is not intended as legal or investment advice.

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