Chief Economist Scott Brown discusses current economic conditions.
Efforts to contain the coronavirus have had a major impact on the global economy. There is still a lot of uncertainty in the outlook, which has three elements. First, there was a sharp decline U.S. Gross Domestic Product in 2Q20. Second, there was a sharp-but-partial rebound off the lows in May. Third, improvement after the initial rebound will slow, barring a vaccine or effective treatment for COVID-19, leaving a long-lasting gap between the level of aggregate economic activity and the pre-pandemic trend. There are significant challenges in the second half of the year and the risks remain weighted predominately to the downside.
Economists are often criticized for being slow on the draw during crises. Few saw the calamity ahead of the 2007-2009 financial crisis. Economic data tend to be lagging and it often takes time to see developing strains clearly. That’s not entirely the case this time. For example, the Brookings Institution had an online conference on “COVID-19 and the Economy” on June 25 (papers here and a 7.5-hour video here). Researchers used a range of real-time indicators to look into the dynamics of the labor market and consumer spending. Many of the conclusions have been discussed in the press already and they illustrate the unusual and uneven impact of the pandemic.
About 20% of the labor force lost jobs by the end of April. Job losses were concentrated among low-wage workers: 37% of workers in the bottom 20% of the wage distribution, compared to 9% in the top 20%. In May, overall employment was about 15% below the pre-pandemic level, but 30% below for low-wage workers. In the BLS data, the drop in low-wage jobs dramatically boosted average hourly earnings. Many of the laid-off workers expected to be rehired and firms did rehire workers in May (but not fully). Lower-educated and non-white workers were more likely to be laid off – and the least likely to be rehired
Consumer spending sank sharply in March and April, but has rebounded fastest for those at the bottom of the income scale. Government programs have played a significant part. “Recovery rebate” checks and deposits went out to all workers (with individual income below $75,000 or joint income below $150,000) whether unemployed or not (also, reportedly, to a million dead people). Expanded unemployment benefits, which allowed claims for the self-employed, part-time workers, and those who had previously exhausted their regular benefits, helped to offset lost wages. Figures through early June show that about 10 million people were receiving benefits beyond the 20 million or so receiving regular state unemployment benefits. In some cases, workers are taking more per week than they did working. However, there’s no evidence that this is preventing individuals from returning to work.