Will The US Economic Rebound Falter In 2020’s Second Half?

A number of encouraging economic indicators suggest that the US is recovering from the coronavirus recession that crushed output in the second quarter. But deciding if a bounce off a very deep bottom is laying the foundation for a robust, sustained recovery remains unclear. There are still too many unknowns lurking to develop a high-confidence forecast for the second half of 2020.

The biggest unknown is the arrival date of an effective vaccine that’s widely accepted by the public. Although Russia claims bragging rights as the first nation to formally announce a vaccine, there’s plenty of skepticism that this mostly about politics rather than science.

The good news is that vaccine development is evolving rapidly on several fronts. US health secretary Alex Azar said this week that America could greenlight a vaccine by the end of the year.

The expected efficacy of any vaccine is open for debate. Ditto for the percentage of people who’ll take the vaccine. But as a silver-bullet solution for what ails the economy, the prospect of a vaccine is, in theory, second to none.

Meantime, the guessing game goes on about how the economy recovers from a devastating Q2 that drove the US GDP down by a record 32.9% in annualized terms.

After such a steep decline it’s encouraging to see early estimates of Q3 GDP reflecting a strong bounce. The Atlanta Fed’s GDPNow model, for example, currently estimates growth at 20.5% for the July-through-September period (as of Aug. 7).  Other nowcasts for Q3 offer similarly upbeat estimates of a rebound.

Various business cycle indexes also reflect a strong bias for recovery. The Philly Fed’s ADS Index, for instance, has rebounded sharply, based on data through Aug. 1. (The red line is the San Francisco Fed’s estimate of a neutral level that separates growth from contraction.)

But identifying convincing econometric clues that distinguish between a dead-cat bounce and a genuine recovery is a work in progress.

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