That would be the quintessential establishment and boringly conventional Organization of Economic Cooperation and Development, the Paris-based “rich nations'” entity that grew out of the Marshall Plan and has a reputation for excellent data, and also the Congressional Budget Office, generally regarded as bipartisan and highly professional.
So I saw their forecasts of US economic performance in terms of GDP and unemployment rates for the end of this year, and I find both to be highly unlikely, probably way too pessimistic. I get these from a column in today’s Washington Post by the often execrable Robert J. Samuelson, but here he is playing it straight and just reporting. Indeed, the main thrust of his column is to note an apparent disjuncture between the hot stock market and the not-so-obviously hot economy, suggesting either the stock market is overvalued or the economy is being under forecast. I suspect actually that both are true, although I am not going to attempt to forecast the stock market.
Anyway, RJS reports two forecasts coming out of the OECD, one “pessimistic” and one “more pessimistic” for the US. The first is sort of a baseline one that assumes the coronavirus is gotten to be more or less under control. The second one assumes a second wave of the virus this fall. The first forecast sees a GDP decline for 2020 of -7.3% with an unemployment rate at the end of the year of 11.3%. The second more pessimistic one has GDP declining -8.5% with a resulting end-of-year unemployment rate of 12.5%.
The CBO forecast, just one, is not quite as pessimistic. It sees GDP declining -5.9% for the year with the unemployment rate ending up at 10.6%.
Well, the latest unemployment rate is reported to be 11.1%, already lower than what either of the OECD forecasts see as the US economy having at the end of 2020. That is above the 10.5% forecast by the CBO, but not by much, especially if one notes that the rate declined by about 2% in just the last month. For the OECD projections to hold, the US GDP will have to stop rising, as it appears to be doing and go back downwards, thus giving us the infamous “W” pattern some have forecast, even without a second wave. The CBO forecast may not need an outright downturn, but it will need a pretty hard flattening to near-zero growth soon to come true, something like the “square root” pattern that some have forecast.
Now most think the growth of the US economy is slowing, probably has been since sometime in mid-to-late June after the new infection rate took off again and we began to see renewed closings, although in some states reopenings are still happening. But in fact, most private forecasters have the US economy still growing, although there is much debate about how much (see Econbrowser for a recent post on competing forecasts, all positive for the near term).
I think it is impossible for the US economy to follow the forecasts coming out of the White House and its sycophants that would have the US experience a V-shaped recovery all the way to the election, with the US getting back to its “perfect” February condition. But unless we do have a full-blown second wave, I think it is unlikely the unemployment rate will be over 10 percent come November 3, even if I am not going to try to pin it down more. The OECD and CBO forecasts are not impossible, but I think they involve a very serious and ongoing full-blown pandemic continuation in the US unlike what we see in all but a handful of other nations. And if Trump starts wearing a mask all the time and starts actively pushing his followers to do so, that may well bring the virus more under control and make those OECD and CBO forecasts and up looking way too pessimistic.
“But unless we do have a full-blown second wave…”
What do you think is going on right now?
This still seems way too optimistic unless a second strong relief package is passed. What’s currently on the table now in congress will do little to support small businesses, most families, and would weaken the expanded unemployment benefits that are set to expire in the next few weeks. And that is assuming it will pass.
The economy has been operating largely on fumes and without wide economic support, the drop in demand will lead to an insidious spiral of cutbacks.
The original aid packages were designed around the concept of a 2-3 month lockdown. We are now facing at least another year best case before the population at large may return to normal assuming that a vaccine becomes available. Even if once one is ready it will take months to distribute it and manufacture it at scale.
Give all that, there’s the possibility 15-16% unemployment by the end of September increasing to 18-20% by year-end.
This has been a year full of surprises and we may see a few more before it is through, but the potential impact of those tend almost entirely to the negative.
This is still the first wave. We never got over it.