A new report from the Congressional Budget Office is projecting that GDP will decline at an annual rate of 38% this quarter, or 11% less than the first three months of the year. Here’s what the latest data on the economy tells us about recovery.
The CBO estimates that the jobless rate will stay above 15% through September (it was 14.7 in April), a level not seen since the Great Depression; that rate will eventually fall, but it will take a long time and the annual unemployment rate won’t dip below 10% until 2021.
The office is also projecting consumer spending to fall by more than 11% this quarter (or 39% year over year) after falling 7.6% during the first three months of the year. The CBO expects this spending to recover in the second half of the year, growing at a rate of more than 22%.
For now, however, retail numbers paint a grim picture of reality with sales plunging more than 16% in April as stores and businesses shut down and cash-strapped consumers pulled back on spending.
The four major pieces of legislation intended to stem all the economic damage will cause the federal deficit to grow by $2.2 trillion during the 2020 fiscal year, the CBO projects.
There are some signs of economic recovery as states begin to slowly reopen: applications for home purchases have gained for the fifth week in a row, the Mortgage Bankers Association said on Wednesday, though housing starts (new construction projects) have fallen to their lowest level since 2015.
The CBO is projecting that the number of unemployed people during the current quarter will be 26 million higher than in the last quarter of 2019.
Two of the nation’s most visible policymakers—Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell—testified in front of the Senate Banking Committee on Tuesday about their role in managing $500 billion in funding for emergency loans under the CARES Act. The two officials took radically different views on how economic recovery in the United States should proceed, with more than 36 million people out of work and the unemployment rate about 14%.
Mnuchin emphasized the importance of reopening businesses as quickly and safely and possible, while Powell focused on the need for more policy actions both to contain the virus and to prevent longer term economic damage. Both officials echoed the CBO, saying that the economic pain is likely to get worse before it gets better.
WHAT TO WATCH FOR
Data on jobless claims for last week will be released by the Labor Department on Thursday morning. Economists are expecting another 2.4 million people to have filed for temporary unemployment benefits. While the number of new claims has been steadily declining from week to week since March, the figures remain astronomically high.