IS TIMING EVERYTHING REGARDING THE COVID-19 RECESSION?

Encouraging macroeconomic data such as estimated retail sales for May and June of 2020 suggest that the recession often associated with the COVID-19 coronavirus shutdowns in the United States might have already ended, at least from a technical perspective.  The U.S. economy may well have resumed growth as of this writing in mid-July 2020. 

However, a few questions remain.  Can we be certain that growth has resumed?  If the recession has technically ended, then what most likely led to the return to growth?  What does the possible end of the recession mean for the well-being of hundreds of millions of people in the U.S.?  And when exactly did the recession end and begin?  Some thoughts about these questions follow.

Regarding the first question, we may not be able to be sure that the recession ended until we receive real GDP data with a growth rate no less than zero per cent.  My understanding is that most if not all are expecting data to show that real GDP in the U.S. decreased again in the second quarter of 2020 and by more than it decreased in the first quarter.  Therefore, absolute certainty about the end of the recession may be at least a few months away, particularly if we need consecutive quarters of expansion to declare the recession over.

Concerning the second question, two obvious possibilities that could have ended the recession in the U.S. would be (1) the at least partial ending of the shutdowns and (2) extremely expansionary fiscal and monetary policies.  The expansionary stabilization policies may possibly have been more helpful at preventing an economic collapse much more severe than the one that the United States has experienced to this point than in returning the economy to growth.

But what does our economic situation mean for hundreds of millions of people?  More people are probably working in the U.S. now than were working in April 2020.  That should help to increase household incomes.  However, probably fewer people are working than the number working in January or February of 2020.  Further, additional unemployment compensation may be about to expire, creating substantial problems for those unable to find employment. 

Moreover, health concerns could be slowing down a possible economic recovery.  For example, should we expect people to spend normal amounts of money on vacations and recreational travel when (a) the pandemic may be worsening and (b) people may be concerned about losing their jobs? Some people may view the situation as amounting to a tradeoff between trying to stop the spread of the COVID-19 coronavirus versus reopening the economy.  However, others may ask whether the two actually go hand-in-hand.  With a widely-available vaccine or a widely-available cure or both, much if not most or all normal economic activity could resume, and the economy should grow.

There would still be the issue of how long it would take for the economy to recover fully from the economic downturn.  That is a topic that will need to wait for further discussion.

If the economic recovery has started in the U.S., then when exactly did it start?  Likewise, precisely when did the recession begin?  One statement from the National Bureau of Economic Research (NBER) could indicate that the recession started in February (https://www.nber.org/cycles/recessions_faq.html).  However, another statement from the NBER could be interpreted to mean that the recession started in March if the monthly peak was in February 2020 (https://www.nber.org/cycles/june2020.html).  If the former is accurate, then the recession started well before the shutdowns (at least to the best of my memory) and poses questions about what the cause of the recession was.  Even if the later time is accurate, the economy may have started contracting before the shutdown.  Readers should realize that estimated retail sales in the United States from the U.S. Census Bureau declined relatively sharply in February 2020 (https://www.census.gov/retail/marts/www/adv44x72.txt), ahead of the shutdowns.  The decline in estimated retail sales was much larger in March and April of 2020 than in February 2020.

The contraction in economic activity in the U.S. was so strong in March 2020 that it offset likely gains in January 2020 and possibly February 2020, with the NBER stating that the peak in economic activity in the U.S. based on quarterly data was in the fourth quarter of 2019 (https://www.nber.org/cycles/june2020.html). To make matters more complicated, I was reminded while listening to something on T.V. last week that U.S. manufacturing, although likely expanding now, had been in a recession in much (if not most or all) of 2019.  Please realize that data revisions may change at least some of the analysis in this blog entry.

Obviously, the sooner that a vaccine or a cure for the COVID-19 virus is widely available, the better it will be for people’s health and the health of the economy.  Both could be very positive developments for people’s living standards.

Beyond the health and the living standards of hundreds of millions of people in the U.S., the recent economic performance or lack thereof could play an important role in the 2020 U.S. elections.  Those elections are as of this writing less than four months away.  But returning to living standards and well-being, in terms of ensuring that everyone shares in the prosperity of the United States, clearly it’s about time!