Shoppers wearing protective masks browse clothing in a store in the Westfield San Francisco Center in San Francisco, California, USA.
Michael Short | Bloomberg | Getty Images
Near-record-breaking stock market levels, a booming, almost bubbling real estate market, and robust retail spending doesn't sound like a major recession. However, this is no ordinary recession.
The Covid-19 pandemic is setting new standards for the economic downturn.
Significantly, unemployment remains high, with the current level of 10.2% still above what the US has seen since the Great Depression. Daily life has been disrupted to unprecedented levels as the restaurants remain limited, the shops have to control the crowd, and the concerts and festivals are so much a part of summer life.
But you wouldn't know that it's all about looking at all the other data.
Retail sales rose 1.2% in July and 1.9% excluding cars as the metric showed a literal V-shaped rebound since the collapse of March and April. The same applies to the sale of existing properties. Productivity reached its highest level in eleven years in the second quarter, and the Atlanta Federal Reserve posted GDP growth of 26.2% in the third quarter, an estimate that rose 5.7 percentage points last week.
What was that about a recession again?
"I don't think we're in a recession," said Jim Paulsen, chief investment strategist at Leuthold Group. "Given the data that is coming in, we will likely backdate that the recession has already ended. That is pretty clear."
If Paulsen is right, it could mean the quickest end to a recession in US history. The National Bureau of Economic Research, which is believed to be the official arbiter for recessions, said the current one began in February. GDP declined 5% in the first quarter and 32.9% in the second quarter on an annual basis using the rule of thumb for consecutive quarters of negative growth.
Then, when that happens, some other things about the Covid-19 recession will stand out: how quickly it came, that it was essentially government induced, and how quickly and aggressively policymakers reacted.
"The biggest difference will be that I can't think of any other recession that essentially goes from a depression-like environment to a war boom within two-quarters," Paulsen said. "Politicians reacted massively immediately and still are. They wouldn't have done that in a normal recession, but they did this here because we immediately had a form of recession, which has never happened before."
In fact, in just a few weeks, Congress passed a $ 2.3 trillion bailout bill, and the Federal Reserve cut short-term interest rates to near zero while passing nearly a dozen credit and liquidity programs.
As a result, the technical end of the recession may already be over. But that doesn't mean that conditions still don't feel like the nation is stuck in a downturn, much like they did after the Great Recession officially ended in mid-2009.
The "real recession" is still out there
In fact, the real recession may still be ahead, said Steve Blitz, US chief economist at TS Lombard.
"It's not a recession yet, and by that I mean the concept of recession as opposed to definition," Blitz said. "We've seen the two negative quarters that the NBER uses to define a recession. But the real recession has yet to emerge."
That will come, he said, when the long-term effects of the current situation are felt.
The monetary and fiscal aid to date has allayed short-term economic concerns: sending checks to displaced persons, lowering interest rates, lending companies and generally boosting the stock market and helping to support areas of the economy that need it. Shares have hit their lows of March 23, although the savings rate catapulted 33.5% in April, well above previous records.
But there are areas that are beyond politics, such as the hollowing out of big cities like New York, Chicago and Los Angeles, where massive flows of people have headed for safer and more prosperous soil.
The service economy is also suffering from damage that could take years to recover. Recent data from Yelp suggests that 60% of eating and drinking establishments fail. Cinemas, airlines and other companies are also facing major structural changes.
"What will trigger the recession in the future is the realization that life is not the same after it reopens, that there are sharp shifts in demand that will seem relatively permanent," said Blitz. "It will affect finances and attitudes, and it will affect wages in a much wider segment of the population."
Where the damage hits the hardest
In fact, Iva Bruni is a 40-year-old restaurant worker who moved three weeks ago from Hawaii to Woodbridge, New Jersey, about 28 miles from New York City. It has been difficult to find work since they moved. In addition, she has exhausted her unemployment benefits in Hawaii and has not lived in New Jersey long enough to receive benefits.
She is upset when she sees the recent decline in jobless claims as an indication of a healing job market.
"It's kind of skewed," said Bruni. "What literally happens to me happens to a lot of people. They have just exhausted their advantages. For those who are not entitled to get something, we just vanish into thin air."
Being in the restaurant business is especially difficult now. Bruni sees openings in her new town, but mostly in fast food franchises rather than the seating where she worked in Hawaii.
Since her job situation has stalled, she has used up her savings and is now anxious to do something so that she and her employed friend can pay the rent.
"This is my future," she said. "I was very frugal and saved a bit of money on the side. To be honest, my savings shouldn't be for the Covid crisis. I know the savings will come to an end, so I have two options: Accept any job, myself when it's $ 11 an hour or $ 15 an hour, or my savings go. So many of us are going to be forced to just survive, so we'll take any job there is. "
This situation, in which those on the lower end of the income spectrum suffer far worse than those on the high end, actually makes this recession look very similar to the last one.
And that means that policy makers who remain involved in partisan conflicts have more work to do.
Although the economy may have escaped technical recession, many dangers await if action is not taken, said Mark Zandi, chief economist at Moody's Analytics. Zandi estimates that the recession that started in February actually ended in April, but another could be on the horizon.
"I think we are in an expansion. The question is how permanent the expansion is. Can we make it to the other side of the pandemic without falling back into a downturn?" he said. "The elephant is kind of stuck in the head and is very prone to falling back into the mud."