(Bloomberg Opinion) -- There’s not much good news about the coronavirus pandemic. In the U.S., tens of thousands have died, hundreds of thousands have been infected and millions have lost jobs. Caseloads continue to rise in many states, and forecasters expect the economy to shrink at an historic rate in the current quarter as a consequence of stay-at-home orders intended to slow the spread of the virus.
But economic indicators change in peculiar ways. There’s reason to expect some to start pointing upward before long. That presents risks. If it leads economic policy makers to become complacent, the good news will be bad.
Indeed, green shoots of good news are already visible. Despite the worst quarter of economic growth in living memory, last week the Nasdaq Composite Index closed on Wednesday having nearly erased its calendar-year losses, which had stood at 22% as recently as late March. The Dow Jones Industrial Average and S&P 500 are still down for the year, but each has increased by about 25% since their low points on March 23.
There’s even a sliver of hopeful news buried in the details of the catastrophic April jobs report. Over 20 million workers lost their jobs in April, up from 3.9 million in March and 2.7 million in February. But those job losses were heavily concentrated in temporary layoffs, which increased by 16.2 million over the month to 18.1 million. Permanent job losses increased by around 500,000, to 2 million. This is good news because workers who are on temporary layoff expect to be recalled to their jobs.
More good news is probably coming. Though the nonpartisan Congressional Budget Office expects the economy to contract in the current quarter at an annualized rate of 39.6%, it also forecasts the nation’s gross domestic product to grow in the third quarter at a 23.5% annualized rate. Fourth-quarter growth is forecast at 10.5%. The budget office forecasts that the unemployment rate will be 20% lower at the end of 2020 than it was in April. And on the public health front, it’s reasonable to hope that the U.S. will catch a break with warm summer weather knocking back the virus, leading to reductions in caseloads as states reopen their economies.
A recovering stock market, eye-popping quarterly GDP growth rates and rapidly falling unemployment will all fuel the re-election campaign of President Donald Trump. As odd as it may seem today, I expect the Trump campaign and the right’s political-entertainment establishment to be trumpeting a successful economic recovery as the 2020 presidential contest heats up this summer.
The good news, combined with the political incentives that shape the behavior of the Republican Party and its supporters to paint a positive picture of the economy, could be bad for workers and companies by serving as an obstacle to congressional and popular support for economic recovery programs. But Congress will still have much to do to help workers and strengthen the economy’s productive capacity.
Why? For one thing, health authorities have warned that the virus is likely to surge in the fall, leading to a slowdown in economic activity relative to the summer. Public policy shouldn’t bank on the best-case scenario.
Another important and underappreciated reason: The stock market is not the economy. Any doubt on this should be erased by the fact that the market has been trending upward for the last month-and-a-half while an economic calamity is unfolding.
Some of the good news can lead to wrong conclusions. The CBO is correct that annualized rates of quarterly economic growth in the summer and fall will probably be remarkable. But that’s just because the current quarter is so terrible.
Looking at over-the-year changes, the CBO expects the economy to be 5.6% smaller at the end of 2020 than it was at the end of 2019. This would be, and surely will be, a devastating economic contraction. The congressional budget analysts don’t forecast positive annual economic growth until 2021.
Because of the large number of unemployed workers on temporary layoff, the unemployment rate is indeed likely to drop quickly. But the unemployment rate is sure to remain extremely high at the end of 2020 — 11.7%, according to the CBO forecast. By comparison, the peak unemployment rate after the 2008 financial crisis reached 10% at the end of 2009.
From February to April, the economy lost 25.4 million jobs. The employment rate — the share of the population with a job — dropped from 61.1% in February to 51.3% in April. Even if all 18.1 million workers who were on temporary layoff in April were rehired, April’s employment rate would still have fallen by 2.9 percentage points from February, to 58.3%. This would wipe out over six years of employment increases, taking the U.S. back to the employment rate in October 2013. And a 2.9-point drop in the rate would make this recession worse than all others except two since the end of World War II.
The longer economic demand remains weak, the more employers will go bankrupt or will shrink their workforces. Many temporary layoffs will become permanent.
While meeting with House Republicans last Friday, Trump declared that he’s “in no rush” to work with Congress on creating another economic recovery package. Larry Kudlow, the president’s top economic adviser, said discussions on additional legislation are “in a lull right now.” Many Senate Republicans share this view, and they’ve shown little interest in using a $3 trillion relief package unveiled by House Democrats on Tuesday as a starting point for negotiations.
But the economy will need additional support even if there’s significant economic improvement in the next few months. Millions of workers will be out of jobs, families will face hardship, many businesses that were productive and profitable before the pandemic will be hanging on by a thread, and low-income workers and households will bear a disproportionate share of the pain. Recovery programs will be needed for much longer than the White House and Senate Republicans seem to think.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of “The American Dream Is Not Dead: (But Populism Could Kill It).”
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