Conflicting Outlooks on US Economic Recovery... Rising Concerns Over Earnings Amid Expectations for Economic Activity Resumption

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Opinions are divided on the recovery of the U.S. economy. Despite conflicts with China, the New York stock market continued its rally amid expectations for economic reopening. However, uncertainty about demand growth remains, and concerns that corporate earnings will worsen further were also reflected in the indicators.

On the 1st (local time) at the New York Stock Exchange, the Dow Jones Industrial Average closed at 25,475.02, up 0.36% (91.91 points) from the previous session despite intense protests. The S&P 500 and Nasdaq indices also closed up 0.38% and 0.66%, respectively.

The market rise on this day is significant in that it overcame negative factors. Additional negative factors that could impact the market emerged in the U.S. Following China's measures to halt imports of U.S. agricultural products, there are speculations that the scope of the purchase ban could be expanded. However, the view that this would not be enough to dampen expectations for economic recovery lifted the market. The prevailing judgment was also that the protests do not comprehensively restrict U.S. economic activities.

The rebound in manufacturing indicators after the economic reopening also drew attention. The Institute for Supply Management (ISM) announced that the U.S. manufacturing Purchasing Managers' Index (PMI) for May recorded 43.1. This is a slight recovery compared to April's 41.5, which was the lowest in 11 years. This can be interpreted as a positive impact of the resumption of economic activities. ISM evaluated May as "a turning point month."

However, negative outlooks on economic recovery are not insignificant. According to a Q2 survey conducted by CNBC targeting global Chief Financial Officers (CFOs), more than 8 out of 10 rated this year's outlook negatively. 87.8% of respondents expected their companies' performance to be poor this year. The proportion who responded "very negative" accounted for 39.0%. Those who answered "too early to evaluate" accounted for 4.9%, a significant decrease compared to 30% in the Q1 survey conducted in March. Uncertain outlooks have turned negative.

In particular, CFOs expected the U.S. economy to deteriorate more than other regions. 64% of respondents said that domestic demand in the U.S. has decreased considering their company's performance since April 1.

The long-term outlook for the U.S. economy is also not bright. The Congressional Budget Office (CBO) projected in an analysis released on the same day that real Gross Domestic Product (GDP) from 2020 to 2030 could decrease by up to 3%, amounting to $7.9 trillion (approximately 9700 trillion won). Nominal GDP, which does not consider inflation, is expected to decrease by 5.3% to $15.7 trillion. Philip Swagel, CBO Director, said, "Business activity shutdowns and social distancing measures are expected to reduce consumption," adding, "The recent sharp drop in energy prices will significantly reduce the scale of U.S. investment in this sector."

This content was produced with the assistance of AI translation services.