Despite coronavirus cases reaching peaks in the West and South and July jobs growth decelerating somewhat from the 7.5 million jobs boom of May and June, our economy is actually recovering faster than economists anticipated.
From February until the end of the recession in April, the economy lost 22.1 million jobs. Since then, we’ve recovered 9.3 million jobs. The unemployment rate increased from a half-century low of 3.5% in February to 14.7% in April. Of that 11.2 point increase, we’ve clawed back 4.5 points, or 40%, thanks to July posting a 10.2% unemployment rate.
It’s difficult to estimate how much economic destruction will be permanent as business closures reduce GDP and erase jobs for good. But one way to think of our gains is that we’ve recovered roughly 40% of the destruction from coronavirus shutdowns. That’s still devastating, but we’re no longer in wildly uncharted territory. Our 10.2% unemployment rate is nearly back to the 10% October 2009 high of the Great Recession.
More tellingly, it seems as though underlying demand remains strong and primarily inhibited by legal restrictions, not a lack of liquidity — and we’re outpacing expectations.
In April, the Congressional Budget Office anticipated that our second-quarter unemployment rate would be 14% and that our GDP would contract by 11.8% from the first quarter. Instead, our unemployment rate was 13%, and our GDP contracted by 9.5% from the first quarter to the second. That’s not great, and it’s still slightly worse than what McKinsey and JPMorgan Chase had anticipated back in March, but then again, that’s when we were being told we just needed 15 days to slow the spread and all that mattered was flattening the curve. Half a year later, and more than half of the nation’s largest school districts are staying shut down for in-person teaching as localities attempt to keep the economy shut down. All in all, it’s sort of shocking were not doing worse.
Now, let’s assume that the CBO’s third-quarter recovery projection back from March is right, even though its second-quarter error overestimated losses. We would then expect to see the economy grow 5.4% from the second quarter to the third. Once again, that would pair the notion that we’re on pace to recover nearly half of our economic devastation. Not great, but better than we had hoped for.
All of this remains contingent on balancing proven safety precautions like social distancing and indoor mask-wearing with reopening as much of the economy as possible. That means utilizing outdoor spaces as much as possible and letting parents, especially mothers, get back to work by allowing children either to return to school or to receive taxpayer-funded tutelage — individually or cost-shared in a homeschooling pod.
Furthermore, Congress needs to buck up and cushion the second half of this recovery with a new coronavirus crisis bill. But as the Bureau of Economic Analysis’s second-quarter GDP report proved, consumers are driving this economy. If we reopen, demand will return.
