As the United States continues to witness an increase in the number of COVID-19 infections, the economic state of the country remains unstable. Although, the industry and employment landscape in the US continues to recover, the effects of the pandemic and nationwide lockdowns will be seen on the GDP in Q1 of 2021, according to Eliza Winger, a Bloomberg economist.
The impact of the restrictions implemented to fence the spread of coronavirus was evident from an increase in the number of applications for unemployment insurance and a decline in restaurant bookings. However, the demand for housing remained strong and the retail sales saw an increase due to the issuance of stimulus payment.
The US Economy in the year 2020
Before the pandemic, the industrial average of the Dow Jones was reaching record highs, the employment rate was at a decent 3.5%, and the core inflation was reasonable at 2.4%. Then, the coronavirus pandemic changed everything. Nationwide lockdowns became the norm when the US government declared a national emergency in order to stop the coronavirus from spreading. The shutdown caused great economic turmoil with lay-offs and unemployment levels at record high, decrease in consumer spending, and stock market crash. Within no time, recession was staring us in the face. According to the National Bureau of Economic Research, the US economy witnessed a peak in the monthly economic activity in the month of February 2020, and that peak marked the end of the expansion that commenced in June 2009, also marking the start of recession. This was the longest ever expansion in the history of US and it lasted 128 months.
In Q2 of 2020, the economy fell by a record 31.4%, while the quarterly GDP contracted more than 10%, which hasn’t been witnessed since the record-keeping began in 1947. In April, as companies were furloughing employees, the unemployment rate reached a high of 14.7%. As the restrictions eased gradually, the economy observed a rebound in Q3 of 2020, reaching a revised annual rate of 33.4%. Several renowned economists predicted that at least 100,000 small businesses would permanently close by spring. After witnessing a free fall in the first half of 2020, the US economy began observing a mediocre U-shaped recovery at the start of 2021.
The recovery will be slow in 2021
According to Goldman Sachs, the year 2021 will be prosperous for the United States, but there is a possibility that it might get worse before it gets better. The recovery path seems a little bumpy as the winter sets in, and the country witnesses a surge in the COVID-19 numbers. The reacceleration of recovery can be expected when the effect of vaccine is evident. The widespread distribution of the coronavirus vaccine will have a great impact on the recovery. As predicted by The Federal Reserve and several experts, the economy will slouch through 2021 or 2022.
Although the relief package would act as a cushion for the impact of COVID-19 on the economy, it would not be enough to strengthen the economy, as suggested by some economists and lawmakers. According to them, the economy would need more aid to stabilize. According to Ryan Sweet, Senior Director, Moody’s Analytics, even though the relief packages are being approved more than expected, the dearth of additional aid will result in layoffs and cuts in spending. Additionally, the latest stimulus package can help divert the path toward a double-dip recession.
