Is the recession over? Don’t start celebrating yet
Prior to the government’s release of its first estimate of economic growth (GDP) for the third quarter, the consensuswas that itwas going to be a doozie— and for a change, a good one, whichwould be a welcome relief fromthe first half of the year. TheCOVID-19 shutdown caused second quarter output to plunge at a 31.4% annualized pace (9% on the quarter), which followed a 5% drop (1.3% for the quarter) in the first quarter.
The sudden stop in national output caused theU.S. economy to enter a recession in February, according to the Business CycleDating Committee of theNational Bureau of Economic Research, the organization responsible for declaring the beginning and end of recessions.
In fact, the pandemic recessionmarked the end of the big run for theU.S. economy. The expansion began in June 2009 and lasted 128months, the longest in the history ofU.S. business cycles dating back to 1854. Nowthe big question that looms: Is the recession over? As stay-at-home orders were lifted throughout the third quarter, activity bounced higher— by 33.1% on an annualized basis, which equates to a quarterly rate of 7.4%. Itwas the strongest quarterly growth sinceWorldWar II (the previous recordwas 16.7% annualized in the first quarter of 1950).
We may think “30 down, 30 up— all is good, right?” Not so fast. The third quarter gains came off of a smaller base, so even though the numberwas impressive, itwas not “enough to get us out of the holewe are still in due toCOVID,” said Diane Swonk, chief economist atGrant Thornton. The economy remains about 3.5% belowits pre-pandemic level.
Part of the problem is that the report already feels stale because data released over the past couple ofweeks suggests that the pace of recovery is losing some of its Q3 steam. Estimates for the current quarter range from about4% to 5% growth. That’s good, but it’s not enough to recoup the losses that the country has absorbed. For theU.S. to achieve what China has achieved— that is, to almost fully return to the pre-COVID pace of economic growth — the government needs to better control the health pandemic and also needs to provide more money to stimulate growth and help those who are suffering.
In its most recent assessment of the worldwide impact ofCOVID-19, the InternationalMonetary Fund (IMF) notes that the health and economic crisis is “far from over. Employment remainswell below pre-pandemic levels, and the labor market has become more polarized with lowincomeworkers, youth andwomen being harder hit.” While growth has improved from the direworries in the spring, the world economy has clawed back about 60% of output lost fromthe pandemic, and the IMF projects that theU.S. economy will contract by 4.4% for the full year.
The IMF says there needs to be more action, including greater international collaboration in developing tests, treatments and vaccines; more direct government help forworkers and businesses; and worker retraining and reskilling.
“The next six months will be crucial,” Swonk said. “The economy could easily stagnate orworse in the fourth and first quarters if Congress fails to deliver. What was hopedwould be a short-term shock could metastasize into a more traditional and long-lasting recession.”