Wondering How the Economy will Recover?

As we continue to work through the health crisis that plagues this country, more and more conversations are centered around economic recovery. While we look for signs that we’ve reached a plateau in the number of COVID-19 cases, the concern and fear of what will happen as businesses re-open is on the forefront of our minds. Understandably, this may cause confusion about what an economic recovery will look like. With this in mind, it’s important to understand how economists are using three types of sciences to formulate their forecasts and to work toward clearer answers.

1. Business Science – How has the economy rebounded from similar slowdowns in the past?
2. Health Science – When will COVID-19 be under control? Will there be another flareup of the virus this fall?
3. People Science – After businesses are fully operational, how long will it take American consumers to return to normal consumption patterns? (Ex: going to the movies, attending a sporting event, or flying).

Sam Khater, Chief Economist at Freddie Mac, says:

“Although the uncertainty of the crisis means forecasts of economic activity are more unclear than usual, we expect that most of the economic damage from the virus will be contained to the first half of the year. Going forward, we should see a recovery starting in the second half of 2020.”

This past week, the Bureau of Economic Analysis released the advanced estimate for Gross Domestic Product (GDP) for the first quarter of 2020. That estimate came in at -4.8%. It was a clear indicator showing how the U.S. economy slowed as businesses shut down and consumers sheltered in their homes.

Experts agreed that the second quarter of 2020 would be an even greater slowdown, a sign more businesses are feeling the effects of this health crisis. The same experts, however, project businesses will rebound, and a recovery will start to happen in the second half of this year.

Bottom Line

No one knows for sure, but as time goes on we’ll have more clarity on what the true economic recovery will look like. As the nation’s economy comes back to life and businesses embrace new waves of innovation and technology to serve their customers, the American spirit of grit, growth, and prosperity will be alive and well.