Opinion: Celebrate economic recovery signs despite COVID-19 downturn
At the end of March, the future of our economy with COVID-19 looked dire: The Dow Jones Industrial Average had declined over 38.4% from its all-time high in mid-February; the NASDAQ (-32.5%) and the Wilshire 5000 (-37%) also fell sharply from record highs. On April 5, noted economist Paul Krugman predicted 20% unemployment by mid-April with record numbers of Americans out of work. Investment guru Mohamed El-Erian predicted in April U.S. GDP would decline between 10-14% on an annualized basis.
Recent data reveal the overall U.S. economy was much stronger going in to the downturn and rebounded more assertively than most expected. Consider the following:
The U.S. unemployment rate for April reached 14.7% and then unexpectedly declined. The U.S. unemployment rate fell to 13.3% in May with a surprising 2.7 payroll gain, followed by a shockingly low unemployment rate of 11.1% in June as the nation regained an astounding 4.8 million jobs. In addition, the labor force participation rate has steadily improved since its yearly low of 60.2% in April reaching 61.5% in June. U.S. retail and food service sales data for May came in at $485.5 billion, up an impressive 17.7% from the April sales figure of $412.6 billion with June sales up an impressive additional 7.5%. On the real estate front, sales of new single family homes in May were 676,000 which exceeded May 2019 results.
The Institute for Supply Management’s (ISM) manufacturing index saw economic activity grow to 43.1% in May and climb another 9.5 points in June to 52.6%. Historically, when the index surpasses 50, it signals an end to a manufacturing recession. Meanwhile, the ISM non-manufacturing (service) index reached 57.1 in June.
Northwood University's McNair Center predicts 2020 auto sales will reach 14 to 14.5 million units sold, more than many experts forecasted in March.
Oil prices briefly turned negative in late April raising the fear of a long price war between Russia and Saudi Arabia that would devastate U.S. oil interests in multiple states resulting in numerous bankruptcies. Oil recently closed above $40 a barrel, leaving many surprised and relieved the U.S. oil industry took less of a hit than originally expected.
Goldman Sachs' most recent U.S. GDP forecast calls for -4.6% annual growth for 2020 with double-digit growth in Q3 and Q4 and +5.8% growth for 2021.
The Conference Board’s June U.S. Consumer Confidence Index rose from 85.9 in May to 98.1 in June, due, at least in part, to strong retail sales and encouraging unemployment data. Furthermore, gasoline sales jumped 15.3% in June, suggesting consumers are now willing and financially capable of increasing contributions to travel and tourism for the summer months. According to the COVID Tracking Project, at the end of February we had only tested 316 Americans for the COVID-19 virus, today more than 50 million tests have been administered to date.
The Citigroup Economic Surprise Index tracks economic data across the United States and measures change in performance by region. The overall index fell to an all-time low in April then reached a record high in June.
Finally, from their March lows to the time of this writing: The Dow Jones Industrial Average is up 40.81%; the Wilshire 5000 is up 46%; and, the NASDAQ is up 51.61% to an all-time record high above 10,400.
Today, we need more celebrating and less blaming across America as no one I know was predicting the above results in March as U.S. stock markets collapsed.
Dr. Timothy Nash is director of the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University.