Earlier this month, in a discussion about the coronavirus and the economy, Federal Reserve Chair Jerome Powell said he is expecting a weak second quarter, marked by “very low economic output and big increases in initial claims for unemployment.”
With more than 22 million people having filed initial unemployment claims, we can already see the “big increases” Powell referred to. What we don’t have data on right now is how this crisis is affecting gross domestic product, the total value of goods and services made in this country.
We called up a few economists to ask how they are calculating GDP when so much of the economy has stopped and to hear their predictions of how this economic crisis will affect GDP for the second quarter, which started in April and lasts through June.
“We think you’re looking at an annualized contraction somewhere between 20 and 25%,” said Jay Bryson, acting chief economist at Wells Fargo. For reference, GDP grew by 2% in the second quarter of 2019.
Bryson’s prediction is based on the fact that people aren’t spending money as usual. To make his calculation, Bryson made educated guesses on what consumer spending will look like in different industries.
“Just look at people going through [Transportation Security Administration] lines. That’s down 95%,” he said. Consequently, he expects air travel to be down 80% to 90% this quarter and predicts similar drops in the restaurant and hotel industries.
Bryson and his colleagues at Wells Fargo forecast GDP regularly, but he said this calculation was different than usual.
“Frankly, there’s a lot more art than science right now,” Bryson said. “We have not seen anything like this. There’s no playbook that we can go back on and dust off and say, ‘Oh, this is what it looks like when the economy completely shuts down.'”
Campbell Harvey, a professor of finance at Duke University, took a different approach to calculating his GDP estimate for the second quarter, focusing on income loss instead of spending changes.
“I would not be surprised to see minus 25%,” Harvey said.
Next week, we’ll get an estimate of what happened to GDP in the first quarter, which includes the very beginning of this crisis. An estimate for GDP in the second quarter will be released at the end of July.
Betsey Stevenson, professor of economics and public policy at the University of Michigan, is looking even further down the line.
“We saw in the 2008 downturn that it took a number of years before we actually knew how bad our worst quarter in that recession was,” Stevenson said. “It’s quite possible that we don’t know truly how big the decline in GDP is this year, last quarter or this quarter, for five years.”
COVID-19 Economy FAQs
How many people are flying? Has traveled picked up?
Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.
How are Americans feeling about their finances?
Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.
Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.
What’s going to happen to retailers, especially with the holiday shopping season approaching?
A report out recently from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.
As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.
Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.
Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.