The SBCTA Board of Directors was given an economic briefing at their May 6th meeting. Economist Christopher Thornberg from the University of California, Riverside, Center for Economic Forecasting and Development gave an overview of the U.S. economy going into the COVID-19 crisis, where we stand now and what we may expect as the economy reopens post-COVID crisis.
Since there is no modern metaphor for the COVID-19 crisis, economists are struggling to find a model to link to the current situation. The lack of data makes economic modeling difficult. He pointed to the drastic increase in unemployment as one indicator we can glean some insight from. Typically, unemployment is not a leading indicator of a downturn, but the result of a downturn.
“Unemployment is not the effect of some large negative shock to the system, it is the negative shock to the system,” said Dr. Thornberg of the current economic situation.
Businesses having to shut down due to public health mandates is a short-term phenomenon and thus we can expect unemployment to recede when the mandates are lifted. Looking at China’s path to recovery, he highlighted the fact that the Chinese economy began to recover three months after their COVID peak and consumer spending followed a month later.
Dr. Thornberg stated that prior to the COVID-19 crisis, the fundamentals of the U.S. economy was as healthy as it has been in 30 years and solid GDP growth of nearly 3% in 2019 gave the economy momentum going into 2020. U.S. household savings had increased and the ratio of financial obligations to income had decreased as well. The federal government’s swift reaction to the economic crisis through the CARES Act will also help blunt the downturn and speed in the recovery.
The economist’s forecast was that of a “deep V” economic curve. The economy had a very rapid descent since February-March of this year, but we are seeing the bottom of the curve now and should expect to see just as rapid an increase as the public health mandates are lifted and businesses are allowed to reopen. He predicts that we will see rapid GDP growth in the third quarter of 2020 and unemployment should return to pre-COVID levels by the end of the year.