Chris Varvares, co-head of US Economics at IHS Markit, joined The Final Round to discuss IHS Markit's Projected 2020 GDP and his outlook for the market through the end of the year.
SEANA SMITH: Taking a look at the broader market action, we had stocks sinking today. This, of course, came after President Trump called off those stimulus talks until after the election. Now his tweet coming after we heard from Jay Powell earlier today, reiterating the need for more stimulus, warning about an uneven economic recovery.
So for more on this, we want to bring in Christopher Varvares, he's co-head of US Economics at IHS Marketing. Chris, great to have you on the show. So we have no stimulus at this point until after the election. I guess my question to you is, how big of a drag do you think this is going to be on economic growth in the fourth quarter?
CHRIS VARVARES: Yeah, great question. So we have looked at a stimulus package that we thought could have passed, that would have been about a trillion and a half at an annual rate. And that would have added maybe two to three percentage points to growth. Now when you're talking about a 31% decline and a 32% rebound in the third quarter, that doesn't sound like much.
But anything that would hasten the return to full employment and bring people back to work is certainly helpful, and especially when you think about individual businesses or families that might be right on the brink of going belly up. It's important that we use the ability that we have to provide fiscal stimulus to hasten our return to what we would call full employment.
RICK NEWMAN: Hey, Chris, Rick Newman here. Part of the unstated Democratic strategy here is, maybe hold out, see if Joe Biden wins, and if Democrats can take the Senate. And then in early '21, pass a much larger stimulus plan that might even be similar to that $3.4 trillion plan the House passed in May. So if that were to happen, you'd get more stimulus, but it would come later. So how do you sort of do the equation there and say whether we're better off or worse off under that type of scenario?
CHRIS VARVARES: Well, certainly more stimulus is better than less stimulus, and earlier better than later. So I think the economy has enough momentum that it can get through the fourth quarter without additional stimulus for the positive growth rate. But we already are looking for growth to slow significantly from the third quarter, 30 plus percent pop to something that's 5% or less in the fourth quarter. And then maintaining steady growth rates in the low single digits for the rest of 2021.
So having a big stimulus that would come perhaps as soon as the first quarter of next year would certainly accelerate growth after that. Remember, a lot of these things do take some time to gear up. So if it's infrastructure spending, it takes some time. If it's a tax cut, it may take time to adjust withholding schedules to put money in people's pockets.
Surely, the unemployment benefits, because it replaces lost income, is one of the most effective ways that you can get support to consumer spending as quickly as possible into the economy. The checks that we sent out last year is another way. Unfortunately, it was a little misguided in that a very large percentage of those checks were sent to people who were not in any kind of financial distress, and they ended up being saved at least for some amount of time.
They did seem to leak out in the economy into increased spending on goods, since people seem to be not wanting to spend it on services, travel, concerts, sporting events, eating out, et cetera. So we could design a stimulus plan that supported the incomes of those people who lose their jobs, supported the lost income with small businesses and try to get employment back to full employment as quickly as possible without sending checks to people who clearly don't need them.
AKIKO FUJITA: Chris, you talked about some of these families that are really on the brink, and the stimulus check was a bridge for them. We had this study that came out a few months ago that pointed to how the stimulus and the government help prevented roughly 13 million people from falling into poverty. So I'm wondering now that we're looking at even more of a delay, what are the ramifications of that for those who are most vulnerable?
CHRIS VARVARES: Right. So we saw over 20 million people lose their jobs. About half of those roughly are back. So we still have a very large number of people who are unemployed. In addition, we've got part-time workers whose hours have been significantly cut back, which creates this sort of financial distress. And as you note, has perhaps, even though they're working, has made them part of the working poor.
So again, anything that we can do that will replace the lost incomes from those who were working. I mean, we had, we did have a good economy, 3 and 1/2% unemployment rate before COVID hit. It was great. And we need to do whatever we can to get back to that point if we want, well, I think all of us agree that that that's a desirable goal.
The question is, exactly which tactics? How big are these packages supposed to be? Who gets the income support? It's all in the mix. But clearly doing more sooner will prevent those who really are on the edge of whether it's bankruptcy or some foreclosure or being evicted, to give them that to avoid some of these more traumatic financial and life changing events.