Economy Experiencing a Strong Initial Rebound; What Follows?

The initial economic rebound seen in recent weeks won’t bring us back to pre-pandemic levels, explains Chief Economist Scott Brown. “A full recovery will take time.”

Key takeaways

  • As states have relaxed social distancing guidelines, growth has picked up sharply.
  • Federal support has played a key role in countering the economic effects of the pandemic.
  • The recession began in February and may have ended in April or May – the shortest on record. That just means that the economy began growing again, it doesn’t mean that the economy has recovered.
  • The pace of recovery will depend on the virus and efforts to contain it, but it will likely be several quarters before GDP returns to its pre-pandemic level.

Efforts to contain the spread of SARS-Cov2, the strain of coronavirus that causes COVID-19, led to an unprecedented decline in U.S. economic activity this spring. As states have relaxed social distancing guidelines, growth has picked up sharply, also on an unprecedented scale. However, the initial rebound will leave us far short of where we started the year, and there’s a lot of uncertainty about the virus and the future availability of a vaccine or effective treatment against it. A full recovery will take time.

Social distancing had a major impact on several sectors of the economy, notably air travel, hotels, restaurants, retail, spectator events, and healthcare – anything where one would come into close contact with other people. Job losses in these sectors have been massive. The leisure and hospitality sector lost half of its jobs between February and April. A key concern was whether that economic weakness would snowball – that the corresponding loss of wage income would lead to further reductions in consumer spending. That spending is someone else’s income. However, second-round effects have appeared to be relatively limited thanks to government aid.