Economists think Congress may cause economic disaster this summer
Congress reached an agreement on the next stimulus package in less than a month Expanded unemployment benefits expire.State and local governments are Start to feel the The budget is insufficient.And the U.S. Got (relatively) good news In the last week work reportThe country’s unemployment rate in June was 2.2 percentage points lower than in May. At the same time, the economy fell into chaos again. Multiple states With the COVID-19 infection and the surge in hospitalization, the reopened services were withdrawn.
Our latest Economist Survey Emphasize the decision that the government may make next month: On average, these economists believe that Congress’s refusal to expand unemployment benefits or bail out state and local governments will harm the economy as much as the local economy remains open. Big. The number of COVID-19 spikes-even closed due to the virus.
work together Global Market Initiative At the University of Chicago Booth School of Business, FiveThirtyEight asked 31 quantitative macroeconomists what they thought of the various themes surrounding the coronavirus recession and recovery efforts.This Recent survey The survey was conducted from July 2 to 6, which means that the June employment report is fresh in the minds of interviewees-but so are the pandemic conditions and the challenges faced by lawmakers.
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He said: “Between now and November, there are obvious risks. The ability of Congress to continue financial support will be greatly restricted by the politics of the election year.” Jonathan Wright, Professor of Economics at Johns Hopkins University, has been negotiating with us on survey design. “This may cause a greater drag on the economy than local and state closures, simply because the consequences will be so great.”
As the Congressional showdown approaches, we ask experts to estimate the likelihood that several policy decisions will have the greatest negative impact on U.S. GDP in the fourth quarter of 2020. Among the five choices we have proposed, the most important choice for economists is the decision of state and local governments to reshape the economy due to the COVID-19 outbreak. However, Congress’s decision not to provide funding to state and local governments followed closely behind. On the whole, the choices made by the federal government carry a lot of weight—rescue local governments, expand unemployment insurance, and provide continuous assistance to small businesses—becoming even more important:
By the end of the year, what is the biggest economic risk factor?
According to economists, the average probability that each situation will have the greatest negative impact on U.S. GDP in the fourth quarter
|Local or state response options||Average likelihood|
|Due to the surge in COVID-19, the decision to revoke the local economic opening||26%|
|Decision to keep the local economy open despite the surge in COVID-19||17|
|Federal response plan|
|No funding for state and local governments*||twenty three%|
|End/reduce the expansion of unemployment benefits||20|
|End/reduction of aid to small businesses||14|
“[State and local governments] Facing a serious budget crisis, staff will be laid off to balance the budget. ” Julie Smith, Professor of Economics at Lafayette College. She said this could lead to a longer period of high unemployment and financial pain for many families. At the same time, she added that cutting or ending the federal unemployment extension will lead to a sharp drop in the income of many people, making them spend much less, which may severely weaken GDP.
Perhaps for this reason, there is a lot of uncertainty in economists’ forecasts of real GDP in the fourth quarter.When We asked the group last time As far as its forecast is concerned, it believes that GDP will grow by 4.1% at the end of the year, which is a great improvement from the quarter-on-quarter growth of -28.2% predicted in the second quarter of 2020. The expert group called for a reduction in the negative growth (-25.5%) in the second quarter, and the negative growth in the fourth quarter is very similar to the last time (3.8%). However, the scope of the forecast at the end of the year has been expanded a lot, which shows how many things might go wrong. In the last survey, the gap between the 10th and 90th percentage points of our consensus forecast of GDP growth in the fourth quarter was 10.9 percentage points; now the gap is 12.8 percentage points, almost all of the extra Uncertainties all appear in the form of downstream risks. (The expert group agreed that the 10% GDP growth forecast has been reduced from -2.0% to -3.5%.)
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Economists are not particularly optimistic about the trend of the unemployment rate in 2020.The consensus forecast is that the unemployment rate in December will be 10.1%, which is only 1 percentage point lower than the unemployment rate. In June -It can still be compared with the unemployment rate during the Great Depression. Stephen CecchettiBrandeis International Business School Professor of International Finance pointed out that workers are increasingly likely to be unemployed permanently rather than temporarily, which will make it more difficult for them to return to the labor market. He added that it will take a while for the economy to adjust to the new reality. Working from home is the norm, Which can also prevent the unemployment rate from falling rapidly. Cecchetti is also one of the economists who believe that in the worst case scenario, the unemployment rate may soar again by the end of the year.
He said: “There are many people who have not been exposed to this virus.” “It is not difficult to imagine a new outbreak in places like New Jersey or Massachusetts, forcing us to shut down again.”
About half of the economists surveyed also believe that the country’s highest income earners will receive a larger share of the country’s personal income at the end of the year. To understand the extent to which the panel believes that the COVID-19 recession will increase income inequality, we asked about a new indicator developed by the Bureau of Economic Analysis, Find In 2016, the top 10% of households (adjusted according to the number of households) accounted for 37.6% of the country’s personal income. 50% of respondents believe that this number will increase significantly by the end of 2020 due to the COVID-19 pandemic, while 47% of respondents believe that this number will be roughly the same. Only one respondent thought that the number would be lower.
“My biggest guess is that this pandemic will increase income inequality,” he said Sarah ZubairyProfessor of Economics at Texas A&M University. She assumes that this is because unemployment is concentrated among low-wage workers who cannot work remotely. If states had to withdraw their reopening plans suddenly, they might find themselves jumping into the labor market or exiting the labor market.
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Another sign indicated that the United States had been hit by the virus, and the leadership subsequently responded. Our investigation team, by an overwhelming majority (reaching a consensus of 90%), believes that China will defeat the United States and the European Union before returning to the United States. Crisis real GDP level. White believes that, in retrospect, this is a bit “easy” because China’s economic growth so far has been quite rapid and it has the tools to implement comprehensive fiscal stimulus measures, which are not available to economies with less central control such as the United States. Kind of tools.Or the European Union, but some of them may also be based on The reputation of the Chinese government For-how should we put it? -freed Too preferential Public data. Wright said: “After all the things are said, if they don’t like the actual data, they may fabricate the numbers.” “Put these three things together, it is almost impossible for them to be the first person to come back.”
Wright also pointed to another ominous result in the survey: 19% of respondents believe that the real average GDP growth rate in the United States over the past 10 years will decrease by 1-2% per year. To be sure, the vast majority (77%) of economists believe that the 10-year average growth rate will decrease even less, although only one believes it will increase. But these reactions are still shocking, Wright said, because they show that people are not only seriously pessimistic about the speed at which the economy will return to the end of 2019, but are also catching up with the pace of economic development. The COVID-19 pandemic has not yet occurred.
[Related: In 2008, Everyone Thought The Recession Was Bad. But in 2020, Many Americans’ Views Depend On Their Party.]
however, Allan TimmermannThe professor of finance and economics at the University of California, San Diego (who also consulted with us in the survey) was encouraged because most respondents did not want economic growth to be damaged in the longer term.He wrote in an email: “In terms of its cumulative impact on the economy, this is still a big impact.” “But it does show that most interviewees believe that the economy will rebound in due course- Rather than the situation that caused us to fall into the’lost decade’ (such as We have seen in japan), the growth rate is even greater. “
Overall, the latest survey feedback paints a picture of America’s still precarious return to economic health. Much depends on how COVID-19 works and the extent to which the virus forced the local economy to shut down again to slow its spread. However, there are many aspects to important policy decisions surrounding the virus, and these decisions are still being debated. Wright said: “So far, I think economists are surprised by the pace of the rebound.” “However, this has not made them less worried about the coming weeks or months.”
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