There’s not much good news about the coronavirus pandemic. In the U.S., tens of thousands have died, hundreds of thousands have been infected and millions have lost jobs. Caseloads continue to rise in many states, and forecasters expect the economy to shrink at an historic rate in the current quarter as a consequence of stay-at-home orders intended to slow the spread of the virus.
But economic indicators change in peculiar ways. There’s reason to expect some to start pointing upward before long. That presents risks. If it leads economic policy makers to become complacent, the good news will be bad.
Indeed, green shoots of good news are already visible. Despite the worst quarter of economic growth in living memory, last week the Nasdaq Composite Index closed on Wednesday having nearly erased its calendar-year losses, which had stood at 22% as recently as late March. The Dow Jones Industrial Average and S&P 500 are still down for the year, but each has increased by about 25% since their low points on March 23.
There’s even a sliver of hopeful news buried in the details of the catastrophic April jobs report. Over 20 million workers lost their jobs in April, up from 3.9 million in March and 2.7 million in February. But those job losses were heavily concentrated in temporary layoffs, which increased by 16.2 million over the month to 18.1 million. Permanent job losses increased by around 500,000, to 2 million. This is good news because workers who are on temporary layoff expect to be recalled to their jobs.
More good news is probably coming. Though the nonpartisan Congressional Budget Office expects the economy to contract in the current quarter at an annualized rate of 39.6%, it also forecasts the nation’s gross domestic product to grow in the third quarter at a 23.5% annualized rate. Fourth-quarter growth is forecast at 10.5%. The budget office forecasts that the unemployment rate will be 20% lower at the end of 2020 than it was in April. And on the public health front, it’s reasonable to hope that the U.S. will catch a break with warm summer weather knocking back the virus, leading to reductions in caseloads as states reopen their economies.
A recovering stock market, eye-popping quarterly GDP growth rates and rapidly falling unemployment will all fuel the re-election campaign of President Donald Trump. As odd as it may seem today, I expect the Trump campaign and the right’s political-entertainment establishment to be trumpeting a successful economic recovery as the 2020 presidential contest heats up this summer.
The good news, combined with the political incentives that shape the behavior of the Republican Party and its supporters to paint a positive picture of the economy, could be bad for workers and companies by serving as an obstacle to congressional and popular support for economic recovery programs. But Congress will still have much to do to help workers and strengthen the economy’s productive capacity.
Why? For one thing, health authorities have warned that the virus is likely to surge in the fall, leading to a slowdown in economic activity relative to the summer. Public policy shouldn’t bank on the best-case scenario.
Another important and underappreciated reason: The stock market is not the economy. Any doubt on this should be erased by the fact that the market has been trending upward for the last month-and-a-half while an economic calamity is unfolding.
Some of the good news can lead to wrong conclusions. The CBO is correct that annualized rates of quarterly economic growth in the summer and fall will probably be remarkable. But that’s just because the current quarter is so terrible.