Perpetual recession? Recovery in a year? Economists divided on US future

The economy is currently about 11 million jobs below February's level. It took more than four years, until mid-2014, to recover the 8 million jobs lost in the 2007-2009 recession

Topics
US economy | recession

Reuters  |  WASHINGTON 

Representative image
Representative image

By Howard Schneider

WASHINGTON (Reuters) - A year from now the United States may have emerged from the economic hole dug during the pandemic with growth smartly above its previous trend and output largely recovered.

Or it may be struggling to patch a remaining $2 trillion gash to gross domestic product, with growth stuck in low gear, an ongoing health crisis, and chronic joblessness.

The guessing game that U.S. economic forecasting has become has produced a massive split in predictions as economists from the Federal Reserve to the top Wall Street firms take a stab at unknowables like the path of the pandemic and the ability of a fractured Congress to compromise on spending.

It has given policymakers little solid to plan around and left the Fed reluctant to announce new steps to support the economy until it's clearer what's needed and for how long.

When Fed officials meet this week, they are not expected to take policy steps in part because of "a very uncertain outlook," Cornerstone Macro analysts wrote this week. "Calibrating ... in these conditions is very challenging."

Adding to the challenge: Any rebound in GDP - the broadest gauge of economic activity - may well not be matched in the job market, leaving millions of unemployed Americans with no sense of recovery at all even if growth outperforms.

Indeed, since the 1990s jobs have rebounded far more slowly from recessions than GDP as firms retool to use fewer workers and wait for demand to fully recover before hiring. Between the millions now out of work in vulnerable industries like travel and hospitality and changes in how commerce will be organized after the virus, it could take even longer this time for sidelined workers to find a new foothold.

The economy is currently about 11 million jobs below February's level. It took more than four years, until mid-2014, to recover the 8 million jobs lost in the 2007-2009 recession.

This recovery is clearly different. The economy's addition of more than 10 million jobs over the past four months surprised many policymakers. The 8.4% unemployment rate as of August is already below the 9.3% median year-end expectation among Fed officials.

Central bankers this week must now judge whether or not that pace of improvement will continue, a discussion framed by new economic forecasts they will release on Wednesday afternoon.

When their last projections were issued in June there was a veritable chasm dividing them. Individual forecasts for 2020 saw GDP falling as much as 10% or as little as 4.2%. The gap was 10 times as wide as in December 2019, when year-end predictions between the most optimistic and most pessimistic officials were separated by only half a percentage point.

Year-end estimates of the unemployment rate as of June ranged from 7% to 14%, also several times wider than those common during the last recession and its immediate aftermath.

 

Interactive Graphic: COVID's yawning gap in forecasts COVID's yawning gap

in forecasts https://tmsnrt.rs/3kokkc5

 

Graphic: COVID's yawning gap in forecasts COVID's yawning gap in forecasts https://graphics.reuters.com/USA-FED/RECOVERY/bdwpkkgqopm/chart.png

 

RECORD GROWTH, THEN WHAT?

Economists do agree that when the federal government next month releases its first estimate of GDP for the July through September period, it will likely break records for growth just as the April to June period saw a record decline.

But from there they diverge not based on their models or their math, but on how they read the political winds and their best guess on the success of a coronavirus vaccine.

Assume Congress approves another $1 trillion stimulus, businesses rebuild inventories, and a vaccine comes on line early next year, and you get Goldman Sachs' league-leading call of 35% annualized growth from July to September, steady growth from there, and a quick climb to pre-pandemic levels of output.

Assume no stimulus, slow deployment of a vaccine, and lethargic spending because families and local governments are broke, and "the economy will never regain the pre-COVID trend line," Deloitte LP senior manager Daniel Bachman wrote, among the few analysts predicting the current downturn to produce a permanent economic hit.

Many forecasters have boosted their outlook for the current quarter over time, as data has surprised to the upside. The Atlanta Fed's running tally, or 'nowcast,' of economic growth has nearly tripled since July to a 30.8% annualized rate, nearly matching the 31.7% drop in the second quarter.

The critical issue now is whether the run of good news continues.

"We should allow for the window of possibilities here to be broader than what we were thinking," during the bleak early days of the pandemic, including that a "virtuous circle" of self-reinforcing outcomes could still develop, said Erik Weisman, chief economist of MFS Investment Management.

But for that "you'd have to see a flu season that is not so bad. No second wave (of the coronavirus). No blow up with China. Constructive news on a vaccine. And an election result that does not amount to a constitutional crisis," he said. "Some of these will go the wrong way."

 

(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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First Published: Wed, September 16 2020. 09:22 IST
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Perpetual recession? Recovery in a year? Economists divided on US future

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More Than Warning, 'Intense' Firing Between India & China Led to 100-200 Shots Before Moscow Pact

Fighter plane over mountains in Leh, Ladakh (Reuters)

Fighter plane over mountains in Leh, Ladakh (Reuters)

Top government sources told News18 that India and China exchanged fire twice at LAC. The first round of firing took place in Chushul sub sector on September 7. These were said to be warning shots. The second round of firing occurred on September 8 at North Bank — 'this was serious'.

  • Last Updated: September 16, 2020, 9:39 AM IST

Two days before External Affairs Minister S Jaishankar and his Chinese counterpart Wang Yi reached an agreement in Moscow, heightened tensions along the Line of Actual Control in Ladakh had led Indian and Chinese troops to open fire on the north bank of Pangong Tso. While the Indian troops had moved towards the western side of Finger 3, the Chinese army had moved to occupy the area between Finger 3 and 4. The step by both the countries led to firing of "100 to 200 shots" in the air as the troops came 300 metre close to each other.

A report by Indian Express quoted a top government officer, aware of the details, as saying: "100 to 200 shots were fired in the air by both sides on the ridgeline where Finger 3 and Finger 4 merge before moving north as one ridge."

"In the first week of September, there was a lot of movement" on both the north and south banks of Pangong Tso, the officer was quoted as saying, mentioning "multiple" incidents of firing in the region in the first week of September.

Top government sources told News18 that India and China exchanged fire twice at LAC. The first round of firing took place in Chushul sub-sector on September 7. These were said to be warning shots. The second round of firing occurred on September 8 at North Bank — "this was serious". At least 100 rounds were fired, sources said.

The IE report stated that till date, neither side has officially said anything about the firing on the north bank which took place after the Chushul incident, and was bigger in scale.

The situation, however, has since calmed down, the officer was quoted. "Now things have cooled down because of the talks between our Defence Minister and their Defence Minister and the Foreign Ministers. The focus has shifted towards dialogue," he said.

The two sides have agreed to hold another round of talks between the Corps Commanders though the date is still to be decided. The officer indicated that this time, the talks may include an official from the Ministry of External Affairs, the report stated.

The officer was further quoted as saying that before India occupied the heights along the LAC in the Chushul sub-sector, China was in a position of advantage, and at the discussions at the military and diplomatic levels, "they were trying to bargain for time" as "at that particular stage they were better off" and "they had no reason to negotiate".

On current positions on the Fingers on the north bank, the officer was quoted as saying that the Indian soldiers were above the Chinese deployment on Finger 4.

Chinese troops, he said, are "trying to go further up" but "we are in a slightly better position, there is a limit to how much you can keep jockeying" on that ridgeline, and that the Chinese would not be able to sustain themselves at a point higher on the ridge than where the Indian soldiers are.

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