02
Dec
2020

The second quarter 2020 economic outlook of the US as perceived by Beth Debouvre

The US, which tops the list of worst-hit countries by the coronavirus pandemic, has undergone a huge blow not only in public health but also in its economy. It also faces the biggest negative shock that anyone has seen in their lifetime. In January, the US economy was the strongest economy seen in many years. Then came the pandemic that led to widespread infections and casualties and compelled the government to enforce strict lockdown and social distancing measures across the country to stop the spread and bring the infection under control. Beth Debouvre saw the economy coming to a grinding halt and disrupting lives in ways that no one had ever imagined.

Optimism goes for a toss, observes Beth Ann Debouvre

In May, the Trump government was optimistic about reopening the economy and turning the situation gradually to normal. Some states and cities started relaxing the restrictions to begin moving toward resuming normal life. The government seemed to have achieved its objective of saving lives first and was hopeful that the economy would take an upward trajectory once it starts reopening all business activities in a phased manner. But soon on opening in certain places across the country, there was a sudden spurt in infections. It compelled the administration to roll back the decision at least for some time and again shut everything to halt the surge in infections.

Short term blow

Despite the deep peril that the US economy has been thrown into,it is a short-term blow, and there are high chances of the economy rebounding from the depths and moving upwards. According to the Bureau of Labor Statistics, there were 20 million job losses in March and April, which was about one-seventh of the total employment in February.  Sectors such as recreation services, arts, and entertainment were among the hardest hit (down 55%) and accommodation and food services that declined by 47%. Job losses were witnessed across all private sector industries.

A decline in consumer spending and GDP

The decline in consumer spending is fueling the downturn.

  • Accommodations and food services, together with recreation services, account for 8% GDP. This does not consider the decline in business spending in these areas.
  • Consumer durables account for 7% of GDP, and there has been considerable sales drop in this sector.
  • Heath services contribute to 10% GDP, but this sector has stopped production due to the risk and open hospital capacity for COVID19 patients.

As a result of the massive declines in consumer spending that negatively affects GDP, the GDP is likely to fall by 17% up to June 2020, which constitutes the first two quarters as declared by Deloitte in their forecast for the period.  Due to the high level of continuing uncertainty coupled with lower consumption, there will be a decline in investment spending. As new consumers cannot afford to buy houses, residential construction is likely to allow down, and exports too will drop.

However, there are hopes of a quick and strong rebound in the third quarter based on the medical situation, the global economic impact, and how the economy impacts sectors not directly affected by COVID19.

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