Looking at over-the-year changes, the CBO expects the economy to be 5.6% smaller at the end of 2020 than it was at the end of 2019. This would be, and surely will be, a devastating economic contraction. The congressional budget analysts don’t forecast positive annual economic growth until 2021.
Because of the large number of unemployed workers on temporary layoff, the unemployment rate is indeed likely to drop quickly. But the unemployment rate is sure to remain extremely high at the end of 2020 — 11.7%, according to the CBO forecast. By comparison, the peak unemployment rate after the 2008 financial crisis reached 10% at the end of 2009.
From February to April, the economy lost 25.4 million jobs. The employment rate — the share of the population with a job — dropped from 61.1% in February to 51.3% in April. Even if all 18.1 million workers who were on temporary layoff in April were rehired, April’s employment rate would still have fallen by 2.9 percentage points from February, to 58.3%. This would wipe out over six years of employment increases, taking the U.S. back to the employment rate in October 2013. And a 2.9-point drop in the rate would make this recession worse than all others except two since the end of World War II.
The longer economic demand remains weak, the more employers will go bankrupt or will shrink their workforces. Many temporary layoffs will become permanent.
While meeting with House Republicans last Friday, Trump declared that he’s “in no rush” to work with Congress on creating another economic recovery package. Larry Kudlow, the president’s top economic adviser, said discussions on additional legislation are “in a lull right now.” Many Senate Republicans share this view, and they’ve shown little interest in using a $3 trillion relief package unveiled by House Democrats on Tuesday as a starting point for negotiations.
But the economy will need additional support even if there’s significant economic improvement in the next few months. Millions of workers will be out of jobs, families will face hardship, many businesses that were productive and profitable before the pandemic will be hanging on by a thread, and low-income workers and households will bear a disproportionate share of the pain. Recovery programs will be needed for much longer than the White House and Senate Republicans seem to think.
This article was provided by Bloomberg News.