WASHINGTON — Nearly every economist (except me) was forecasting that the number of jobs added in June would be in the 2 to 3 million range. The actual number was 4.8 million far exceeding expectations. That number is, by far, the most jobs ever recorded in a single month. The previous record was 2.5 million set last month. This data confirms that the economy is in a V-shaped economic recovery.
Some argue that the jobs number is so large, because of the huge number of job losses in March and April. That is true, except that the high job numbers in both May and June, indicate that a rapid, V-shaped recovery has started. The pace of the recovery is staggering.
The Federal Reserve’s forecast is wrong.
The Federal Reserve forecasts that the unemployment rate won’t fall below 10% until the end of the year. That forecast is also inaccurate. The unemployment rate will fall below 10% by August or September. Possibly that rate may drop below 10% in July. That July unemployment number is scheduled for release on August 7.
The US unemployment rate stood at 14.7% in April, the apparent peak of our deep but extraordinarily short-lived recession. It dropped to 13.3% in May and then down to 11.1% in June. This indicates that the recession lasted only a couple of months, likely starting in late February and ending by April 30. The recovery started on May 1, 2020.
Retail sales increased nearly 18% in May, a record one month gain. Total consumer spending increased 8.2% in May, also a monthly record. The pace of re-openings, mostly in the hospitality industry, may slow in late June and July, due to the increased number of coronavirus cases. But the increase in manufacturing and the retail sectors will likely lead to continued high growth.
Professional sports teams appear set to resume activities in July. While teams plan to hold attendance numbers to a minimum, they still plan to televise their games. That can generate tens of millions of dollars in advertising revenue. By late summer or earlier, America can once again tune in to watch professional baseball, basketball, hockey, soccer, football, golf and auto racing events.
The stimulus package stimulated the economy.
Clearly, the government continues to aid our precarious, but seemingly robust V shaped economic recovery through the Federal government’s bipartisan stimulus package. That package gave $1,200 to virtually every adult who filed a tax return in 2018 or 2019. A family of four received a still larger $3,400 check. Taxpayers received this “free money” whether they found themselves negatively impacted by the shutdown or not. Social Security recipients received checks as well.
Additionally, nearly all unemployed workers received a large portion of their regular paychecks through their state’s unemployment compensation program. The Federal government added an additional $600 per week to their state benefit. That meant more than two-thirds of unemployed people actually received more income while not working then they received when they were working.
The government loaned hundreds of billions of dollars to small businesses to keep their workers employed. As long as the businesses did not lay-off workers, the loan turned into a grant. That meant that qualifying businesses did not need to pay off the loan . This kept tens of thousands of small businesses afloat during the ongoing shutdowns.
With all this positive news, and considering the Federal government budget deficit already totals about $4 trillion for this year, at least some in Congress feel the US does not need another stimulus package. This puts President Trump in a difficult position.
Another stimulus package is not needed.
Politically, another stimulus package would be very beneficial to the President in the short term. More stimulus would serve to quicken our already robust recovery. But more stimulus spending increases the Federal deficit even further.
The US had incurred a public debt of more than $23 trillion prior to 2020. Add to that number this year’s $4 trillion deficit, and the public debt increases to $27 trillion. Another $1 trillion or $2 trillion spending package would drive the deficit this year to $5 or $6 trillion.
In turn, the public debt would approach $30 trillion. That’s nearly 50% higher than one year’s GDP. We haven’t witnessed this level of debt compared to GDP since 1946, at the conclusion of World War II. Government spending obviously fell dramatically at that time.
But the government managed to balance the Federal budget by the early 1950s, thereby eliminating the deficit problem. The US hasn’t enjoyed a balanced budget since 2000, incurring very large annual deficits in the last 12 years, initially due to the Great Recession.
The bottom line today: The American economy continues to recover much faster than experts predicted. The spring stimulus package, along with the Fed’s very expansive Monetary Policy, seems enough for now to bring on a truly robust V shaped economic recovery.
Conclusion: Let’s not spend any more money that we simply do not have. Let the economy recover with what the President and Congress have already put in place.