Why is Thinking About the Economic Recovery so Confusing?

markus-spiske-5gGcn2PRrtc-unsplashAs we continue to work through the health crisis that plagues this country and the world, I find that more of our conversations are turning towards what the economic recovery will look like and when it will occur. We are all looking for signs that we’ve reached a plateau in cases of COVID-19, the concern and fear of what will happen as businesses open up again is understandably on all of our minds. All of this causes confusion about what an economic recovery will look like. For this reason I have found that it’s important to understand how economists are using three types of sciences to formulate their forecasts and to work toward clearer answers.

  1. Business Science – How has the economy rebounded from similar slowdowns in the past?
  2. Health Science – When will COVID-19 be under control? Will there be another flareup of the virus this fall?
  3. People Science – After businesses are fully operational, how long will it take American consumers to return to normal consumption patterns? (Ex: going to the movies, attending a sporting event, or flying).

Sam Khater, Chief Economist at Freddie Mac, says:

“Although the uncertainty of the crisis means forecasts of economic activity are more unclear than usual, we expect that most of the economic damage from the virus will be contained to the first half of the year. Going forward, we should see a recovery starting in the second half of 2020.”

This past week, the Bureau of Economic Analysis released the advanced estimate for Gross Domestic Product (GDP) for the first quarter of 2020. That estimate came in at -4.8%. It was a clear indicator showing how the U.S. economy slowed as businesses shut down and consumers retreated to their homes in fear of the health crisis and of contracting COVID-19.Confused About the Economic Recovery? Here’s Why. | MyKCMExperts agree that the second quarter of 2020 will be an even greater slowdown, a sign more businesses are feeling the effects of this health crisis. The small shining light at the end of this is that the same experts, however, project businesses will rebound, and a recovery will start to happen in the second half of this year.

The more time that passes we’ll begin to have more clarity around what the true economic recovery will look like, and we’ll have more information on the sciences that will affect it. As the nation’s economy comes back to life and businesses embrace new waves of innovation to serve their customers, the American spirit of grit, growth, and prosperity will be alive and well.