“Why did America bungle Covid-19 so badly?... What strikes me, when looking at America’s extraordinary pandemic failure, is how top-down it all was….The main driving force behind reopening, as far as I can tell, was the administration’s desire to have big job gains leading into November, so that it could do what it knew how to do — boast about economic success…The irony is that Trump’s willingness to trade deaths for jobs and political gain has backfired.” (Paul Krugman, NYT, July 7, 2020)
In formal terms, the US economy entered the current recession in February as the coronavirus struck the economy and ended a near eleven-year period of consecutive economic growth.
As virtually everyone understands, the combination of the US economic lockdown and the global pandemic essentially pushed the American economy into a phase of suspended animation.
As a result, the US economy shed more than 20 million jobs in March and April.
Prospects brightened a bit in May with some jobs growth and then in June when US payrolls increased by 4.8 million, the second month of strong gains after April’s huge 20 million loss.
June’s large employment increase was primarily the result of rehiring of some of the earlier suspended workers, as the country began some loosening up on the lockdowns in May.
The unemployment rate slipped down to 11.1% In June, a bit lower than the peak 14.7% rate recorded in April. But as of the middle of June there were still some 17.8 million unemployed workers.
However, since mid-June, when the job when the job surveys were taken, the economy seemed to lose some of its momentum and, of course, the number of Covid-19 cases also began to escalate.
The unpleasant reality is that despite the strong June jobs recovery and the somewhat rosier than expected stock market, the Covid-19 recession is far from over.
Even with last month’s hefty job recovery, it still leaves the American economy with 15 million fewer jobs than in February.
That is, the latest strong jobs increase represents progress but it in no way foreshadows a V-shaped economic recovery because the Trump Administration has so mismanaged the pandemic and the economy during this period of almost unprecedented distress.
Mishandling the containment of the virus (i.e. failing to develop sufficient testing, failing to effectively enforce social distancing and the failure to support the use of masks, etc.) has lengthened the recession and will retard the coming economic recovery.
The downside risks facing the coming economic recovery are significant. particularly because the pandemic will accelerate many structural changes in the job market and the economy.
Assuming a slow economic recovery, it will be some time before the economy regains its pre-pandemic levels of production and employment. Consumer and corporate sentiment have been seriously damaged by the shock of the pandemic
Since 1950 it took on average two and a half years before jobs were fully restored after the recession was over.
Nonetheless, as the following employment charts illustrate, the US economy is slowly and painfully clawing its way back into recovery.
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