This year, economic growth started out very strong. January and February’s growth number indicated that 2020 might see the best growth year in two decades. Then the COVID-19 virus struck and the entire economy had to shut down from the middle of March until the end of April. In May, the economy began to re-open. As that happened economic growth turned positive. There was always a question about what kind of recovery the economy would experience. Would the recovery be slow, like with the last recession in 2008-2009 or would the economy recover rapidly as the Trump administration believes?
Economic growth and recovery is V-shaped.
Starting in May and continuing to the present, the economy’s growth has been unprecedented. In fact, May, June, and July probably saw the fastest growth rates ever recorded.
The government does not publish monthly growth rates of GDP. The growth rates are measured quarterly. Looking at that quarterly data, it is easy to conclude that the economy is in very poor condition. Afterall GDP declined by a 5% rate in the first quarter and declined by a 33% rate in the second quarter. The second-quarter number represents the biggest quarterly decline ever.
However, we can estimate monthly activity by looking at the number of jobs added. As companies grow they need to hire more workers, so employment numbers can be used to estimate growth. We also have data for the change in retail sales every month. Retail sales are the majority of consumption which makes up 70% of GDP.
Both these markers look good for the V-Shaped recovery.
The job numbers tell the story of the economic growth
In mid-March, the economic shutdown resulted in 700,000 workers losing their jobs. In April, a record of 20.5 million workers lost their job. March and April were the only two months this year where GDP actually declined. The March decline was so steep, it dragged down the entire first quarter.
Similarly, the April decline was so very steep it deeply dragged down the entire second quarter.
But judging from the job data, May, June and July had GDP growth increasing at the fastest rate ever. In those months more than 9 million jobs were created. That’s more than 40% of all jobs lost during the shutdown. And it occurred in only three months.
In 2018, the economy added 2.7 million jobs for the entire year, about 225,000 per month. President Clinton had the best job-creating performance for his entire presidency. He added an average of 2.3 million jobs per year, less than 200,000 per month.
In May of this year 2.5 million jobs were created, nearly doubling the previous monthly record of 1.3 million jobs created during the Reagan administration. With that enormous jobs-growth number, economic activity began increasing sharply.
In June a whopping 4.8 million new jobs were created, nearly doubling the record set in May. In July, even with some businesses again shutting down, 1.8 million new jobs were created. If GDP growth figures were available monthly the numbers would easily show the fastest growth ever recorded.
In April the unemployment rate was 14.7% By July the unemployment rate had fallen to 10.2%. That 4.5% decrease in the rate is the largest three-month drop ever recorded.
Retail sales grew rapidly.
Of course, the increases were possible because the economy had completely shut down. And that is true. But we are looking at the speed of the recovery. The number of jobs indicates a very speedy, V-shaped recovery.
The government will report GDP growth for the third quarter of this year in late October. Because July was so strong and August and September are also likely to be very strong. The growth rate for GDP in the third quarter will easily exceed 20%. That will be the highest quarterly growth rate on record.
This analysis raises the question about the need for a second round of stimulus. From an economic standpoint, it appears that more stimulus is not necessary. Especially considering that this year’s budget deficit is already about $4 trillion. Any more stimulus will add to the deficit.
The public debt could reach $29 trillion.
The public debt was $23 trillion before this year. It is now up to $27 trillion. Since Congress is considering another $1 trillion to $2 trillion in additional stimulus, the public debt will be as much as $29 trillion.
From a political standpoint, the stimulus is necessary. It will likely pass the House and Senate, in some form.
While the U.S. has suffered greatly from shutting down the economy, it appears that the economy is roaring back. At this pace and assuming the current policies continue after the election, the economy will return to pre-recession levels sometime next year. That means the recovery will have taken just over one year. But only if Trump returns in 2021.
After the 2008/2009 recession, the economy did not recover to pre-recession levels until 2013, some four years after the recession ended, and five years after the recession began. That recovery was led by policies from the Obama/Biden administration.
Lead Image: President Trump Signs an Executive Order on Hiring American
President Donald J. Trump, joined by Vice President Mike Pence, addresses his remarks prior to signing an Executive Order on Hiring American Monday, August 3, 2020, in the Cabinet Room of the White House. (Official White House Photo by Delano Scott)