It’s official: The 2020 recession started in February. But likely ended in May
WASHINGTON — According to the National Bureau of Economic Research (NBER), a private nonprofit that the government has designated as the official determiners of a recession, the current economic downturn in the US started in February. The good news: The 2020 recession likely ended in May, which means the economic recovery started in June.
NBER currently defines a recession as “a decline in economic activity that lasts more than a few months.” That somewhat vague definition replaces the historical definition, which stated that a recession occurs when we encounter two successive quarters of a year with negative growth.
By following that older definition, since Q1 2020 saw negative growth and Q2 2020 will also show negative growth, a recession did occur in the first half of this year. But by either definition, the recession ended in May. Now, a sharp, likely V-shaped, recovery is now underway.
A deep, yet short 2020 recession
That means the US recession, while very deep, may end up as the shortest on record. President Trump, working with Congress, was able to pass several stimulus bills that are already helping to speed up the recovery.
The stimulus measures provided three key components.
- Nearly every tax-paying adult received checks from the government to help compensate for the coronavirus disruption to the economy — and to working Americans in particular. These stimulus checks amounted to $1,200 for an individual and $3,400 for a family of four. Americans received this money whether they experienced a negative impact from the virus or not.
- All unemployed workers received an extra $600 per week on top of the regular unemployment benefits paid out by the state. For more than two-thirds of the unemployed workers, the total unemployment benefits exceeded their weekly paycheck. That not only means they avoided monetary harm. It also means that many workers will actually end up better off financially by remaining unemployed until this benefit runs out at the end of July.
Those two actions provided nearly all consumers with more money to spend. This, at least, helped keep the economy moderately afloat during the peak of the pandemic. Now, as the economy re-opens, consumers seem eager to spend the extra money provided. That helped to shorten the recession. It also provides a bridge to a rapid economic recovery.
President Trump’s stimulus also aided businesses
President Trump also made sure that these legislative recovery packages helped small businesses remain afloat. These measures provided such businesses with the resources to maintain business operations during both the shutdown and the re-opening. The stimulus packages also included loans to small businesses to pay their entire payrolls for a period of time. They also helped address some other expenses as well. A further plus for businesses and workers? If the business retained all of its workers during the lockdown, the government loan turned into a grant that did not need repayment.
As a result, when the US economy fully re-opens, consumers will begin spending and businesses will have maintained the majority of their staffs. Alternatively, businesses forced to shed employees can call them back to work if they were laid off. This should enable them to readily respond to increased consumer demand.
The 2020 May jobs report was a stunner
Much of June’s burst of economic optimism came from last week’s May jobs report. It showed that the US added nearly 2.5 million jobs that month. Just prior to this report, the media loudly proclaimed that May’s numbers would peg US unemployment at a modern record of 20%. But the May report actually caused the unemployment number to drop a full percent to 13% and change.
Many economists are very cautious about reading too much into the May jobs report. But reality show us that this report only marked the beginning of a major projected recovery. When the jobs report for June comes out in early July, we will likely see another record number of jobs added. That number may approach an astonishing 4 million jobs created.
Economic growth, which went negative in the first quarter of 2020 may possibly look even worse in Q2, which marked the bottom of the 2020 recession. But this number will likely turn sharply positive in the third quarter. Growth will skyrocket in the fourth quarter and on into 2021. That means the US will see a V-shaped recovery, indicating an extraordinarily rapid return to growth.
Trump’s prior actions also ensure a rapid recovery
Trump also removed another pile of burdensome government regulations hampering business activities. In addition, he effectively repealed the negative aspects of the Dodd/Frank law and cut taxes for all Americans including corporations, In so doing, he set the stage for launching the most robust recovery in US history. Regulations, Dodd/Frank and high taxes were the key reasons why the anemic recovery from the 2008-2009 Great Recession proved the worst in US history.
As the recovery moves forward, the unemployment rate will quickly fall. It has already dropped from 14.7% in April, to the 13.3% we saw in May. It should fall to under 10% by September and keep dropping after that. As bad as things seem today, we have only just begun to experience a rapid, strong economic recovery. Jobs numbers will look even better in the months to come.
The 2020 recession was deep and short. The 2020 recovery will prove robust and enduring. It will continue long enough to propel the economy back into a healthy expansion. And that expansion will be fully underway as we move into 2021.
— Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.