Wednesday, June 17, 2020

Might There Be A V-Shaped Economic Recovery After All?


This is a matter where if it happens, I shall be proven wrong.  I have mostly emphasized how much uncertainty and lack of knowledge we face about the pandemic as well as the economy in this situation, and have as a result largely stayed away from making specific or definite forecasts on those matters.  However, here and in other places on the internet, I have made a lot of forecasts that the time path of GDP is likely to look like a "lazy J" or "whoosh," a pattern of a slow recovery after the very rapid decline, with a possible W if a second wave of the pandemic hits hard.  What I often dismissed, sometimes rather pompously to people who seemed to push it for blind political or ideological reasons was that there might be a rapid bounceback, a V-shaped recovery.  Now that looks like it might happen, or at least a modest version of it, so I may be wrong on my past forecasts.

Curiously, as noted in a fairly recent post, I was one who was not surprised by the net increase in employment in May, given the evidence noted in still earlier posts of a likely turnaround in GDP that probably dates back even into late April and probably not later than early May, looking at figures on gasoline demand and carbon emissions.  It seemed not surprising that this turnaround would lead to some new hiring, even as further layoffs were clearly happening.  But most of this data seemed consistent with the Whoosh scenario, with these renewed increases occurring at rates much lower than the rates of preceding decline.  So the net increase in hiring in May was only 2.5%, large for a normal time, but only beginning to offset the double digit plunge that had happened before it.

But now we have the report that looks pretty accurate that retail sales rose 17.7% from April to May, not sure  of the precise cutoffs for this.  I made no specific forecast for that, but given the labor hiring numbers, I would figure that probably retail sales rose more than hiring.  But there is no way I would have forecast a double digit increase, and might not even have predicted more than a 5% increase, if I had done so.  Thus, needless to say, I am quite surprised by this figure.

Indeed, for retail sales this more than a V-shaped recovery.  The rate of decline for March to April was -14.4%.  Apparently retail sales are now only 8% below their peak in February.  So the rate of growth of retail sales could slow to half the April to May rate and end up higher than the February level.  I find this hard to believe, but I also have no good grounds for questioning this data.

Advocates of a V-shaped recovery, whether Trump and his immediate advisers, or other economists, mostly a minority, argued that an outburst of "pent-up demand" would lead to this, and it would seem that has happened, with probably some non-trivial assistance from stimulus checks and generous unemployment benefits, along with some other elements of fiscal stimulus, some of which have already stopped or are scheduled to do so in coming months.  I had dismissed such a strong surge of purchasing based on people being afraid and cautious, as well as many sectors still held down specifically due to pandemic restrictions, at least through much of May.

As it is, there have been large sectoral variations in this.  Among the most rapidly rising sectors have been clothing, sports equipment, and furniture.  Would I have forecast these to be tops?  Not particularly.  Others have remained much lower, e.g. cruise lines are still going nowhere.  But lots of sectors have seen pent-up demand bursting out and large sales increases, with retail sales the major part of consumption, which in turn is 70% of GDP.  So this goes a long way to pushing for an overall GDP V-shaped recovery.

But, of course, while it is the largest part of GDP, consumption is not all of it.  And almost certainly the other parts are not rising anywhere near this retail sales rate, with some of them even possibly declining, such as local and  state government activity.  Federal government activity may not be declining, but it is probably not rising that much, as the huge increases in transfer payments are not directly increases in GDP. They only stimulate that through their role in aiding this surge of retail sales that has happened.  While consumers may not have been held back by all the ongoing uncertainty, certainly businesses are, so I would be surprised if we see any increase beyond minimal in capital investment now.  OTOH, there may be some growth in exports as the rest of the world's economy probably turned around sooner than did the US one, and there are reports of some specific exports rising sharply, such as pork exports to China.

There is reason to believe that some of this increase in retail sales will slow down or even reverse, even as some more laggard sectors might pick up.  Several of those most rapidly rising sectors feature big ticket items not likely to be ongoing, especially furniture.  Some of this may have been an outburst of pent-up demand showing up on such big ticket items that will not continue or may even fall back a bit.  But given that I did not catch the scale of this increase at all, I am not really in all that good of a position to make very definite forecasts on all this. 

My bottom line guess on this is that GDP will still not quite look like a perfect (or more rapidly rising on the right-hand side) V, as the non-consumption parts of GDP drag behind and keep the clearly rapidly rising consumption to produce a total GDP rising more rapidly than it fell.  But it is now highly likely that what we shall see in the near future does more resemble a V than any of the other shapes or letters that have been proposed, including those I forecast.

Barkley Rosser


2slugbaits said...

I suspect that what we'll see is a bounce in the goods producing sector while the service sector continues to lag. People have switched to buying stuff rather than services.

It's interesting that so many retail businesses have suddenly decided that a $15 minimum wage isn't such an awful thing after all...and this in the face of a steep drop-off in demand. Almost every business that deals with face-to-face interactions with customers is on board with "hero pay." I wonder if they'll still be so accepting of a $15 minimum wage when things return to normal. said...

Good point, 2slugs. Probably services are growing less rapidly than goods. But they are probably growing, with 10% of the new jobs in that May report being for dental services. As it is, layoffs are still definitely happening, with 1.5 million new apps for unemployment compensation this past week, do not know any sectoral breakdown. So we are continuing to have this weird pattern of some sectors growing while others are laying off.

I also note that i may have understated possible growth of investment. I think my argument about uncertainty holding things back applies to new investment, but one of the sectors with the most hiring in May was construction, which is mostly investment. I suspect most of that was rehiring people who were temporarily laid off from ongoing projects that stopped, but have now restarted, although I do not know that for sure.

2slugbaits said...

I suspect that construction jobs are relatively low risk for COVID-19 because workers are generally several feet apart and most of the work is outdoors. It's not practical for construction workers to wear a mask when it's over 90 degrees and humid, but they do have distance and the outdoors working for them.

Fred C. Dobbs said...

Boston Fed president says quick reopening of economy undermines recovery

Rising COVID-19 cases in states that
reopened early will result in less job growth.

Boston Globe - Larry Edelman - June 19

Efforts to contain the coronavirus are falling short, threatening the economic boost that has accompanied the easing of pandemic restrictions across the country, Eric Rosengren, president of the Federal Reserve Bank of Boston, said Friday.

“The economic toll of the virus is closely tied to how successfully we can get the public health pandemic under control,” Rosengren said in remarks prepared for a virtual meeting of the Greater Providence Chamber of Commerce.

Noting that containment measures so far “have not been particularly successful,” he cautioned against reopening the economy too quickly.

“If there are significant flare-ups in states that have aggressively reopened, the reduction in social distancing that contributes to stronger economic performance in such states now may translate to more depressed economic activity and increased public health issues in those states in the future,” he said. “Given the death toll of the virus even with the economic lockdown, I see a substantial risk in reopening too fast and relaxing social distancing too much.”

Rosengren was set to speak one day after California reported more than 4,000 new COVID-19 cases, a daily record, and Governor Gavin Newsom ordered the use of masks in most indoor and some outdoor settings. Other states seeing a surge in infections include Florida and Arizona. China has put millions of people in lockdown in Beijing after a resurgence there.

As businesses reopen, furloughed and laid-off employees are returning to work, while others are finding new jobs. Employers added 2.5 million jobs in May, after cutting more than 20 million positions in the previous month.

Rosengren said a return to work is good news only if it is done “safely and on a sustained basis.”

“If workplaces reopen without the necessary health precautions, the recent increases in payroll employment could be offset by possible business closures and serious health outcomes later,” he said.

Fred C. Dobbs said...

Is the Coronavirus Death Tally Inflated? Here’s Why Experts Say No

NY Times - June 19

... public health experts say the method used to count deaths from a disease like Covid-19 is decades-old and some amount of uncertainty is simply part of the process.

“Everything is so politically charged, people are looking for excuses to question the data,” said Robert Anderson, who runs the mortality statistics branch of the Centers for Disease Control and Prevention’s National Center for Health Statistics.

States rely on two systems in partnership with the C.D.C. In one system, called disease surveillance, public health staff members and health care workers track the outcomes of people with Covid-19 infections, producing a quick but imperfect public number. In the other system, doctors and coroners submit death certificates to vital records offices, which work with the C.D.C. to tally Covid-19 deaths to create the country’s official death toll from the disease. ...

(Graphics at the link.) said...


I agree that too rapid reopening, especially when combined with people doffing masks and social distancing, is likely to slow things down or reverse them down the road. We are already seeing some establishments and even a few cities reclosing due to virus outbreaks, although probably not enough to affect national level second quarter numbers. We might yet see a W pattern down the road, even as this near term looks like a V. But that is what W is, after all, two Vs attached to each other.

I note that yesterday the Philadelphia Fed released its monthly manufacturing index, and it is way up, almost as high as February. Lots of otficial forecasters, and Menzie Chinn over at Econbrowser, are forecasting a massive decline of GDP for US this quarter, but it increasingly does not look like that will be the case, indeed, might be an increase, even if that peters out or even reverses later.

To 2slug,

What so you think has happened to Moses H over at Econbrowser (also to pgl)? I hate to ask over there. Last we saw he was accepting having his hand slapped by MC for his ongoing remarks about NP, but then he simply disappeared. I am wondering if he simply withdrew, which makes me a bit worried about him, even though he annoyed me mightily, or if Menzie just outright abolished him, in which case I might also worry. But I fear to ask.

Anonymous said...

June 19, 2020



Cases   ( 2,294,045)
Deaths   ( 121,376)

Anonymous said...

Aside -

I only learned today that President Eisenhower in 1957 used federalized national guard soldiers to integrate Little Rock schools:

Anonymous said...

On Monday, September 23, 1957, President Dwight D. Eisenhower issued proclamation 3204 demanding anyone involved with the obstruction of justice to disperse. When his order was not followed, Eisenhower federalized the entire Arkansas National Guard the following day and unit members began assembling at home stations throughout the night. By order of the president, the National Guard was thus directed to support the integration rather than block it as the units had been before. On the 24th, elements of the 101st Airborne Division began arriving at Little Rock to provide additional support and took up positions around Central High. That same day, Adjutant General Clinger met with the commander of the Arkansas Military District and was ordered to assemble a force at Camp Robinson for duty at Central High. Those units were:

1st Battalion, 153rd Infantry Regiment
3rd Battalion, 153rd Infantry Regiment
39th Military Police Company and
Company D, 212th Signal Battalion.

This force, consisting of 107 officers, fifteen warrant officers and 1,184 enlisted men, closed on Camp Robinson just after noon on the 25th. The National Guard soldiers were told, "Our mission is to enforce the orders of the federal courts with respect to the attendance at the public schools of Little Rock of all those who are properly enrolled, and to maintain law and order while doing so… Our individual feelings towards those court orders should have no influence on our execution of the mission." One Arkansas Guard major was quoted as saying, "We have been ordered to maintain the peace and that is what we intend to do." The remainder of Arkansas National Guard units remained at home stations, conducting daily formations and training, but taking no part in the actual operations around Central High School.

2slugbaits said...

You asked about Moses. I don't know. Menzie tolerated a lot of nonsense from him. His petty fights with you seemed more about Moses wanting attention than anything else. And then Menzie might have gotten tired of all those off-topic posts and stupid YouTube video links that no one ever watched. Menzie had plenty of cause for banning him, but I didn't notice anything recently that was anymore more deserving of banishment than other stuff that Menzie allowed. But then again, I have to admit that most of the time I just skipped over Moses' posts, so he might have crossed some line that I missed. But if he did, then chances are we wouldn't have noticed because Menzie would have deleted it, so we'd be none the wiser. But Menzie usually gives folks fair warning.

Moses was too young to be retired and posted too often and at all hours of the day and night, so it seems unlikely that he had a regular job. I just figured that he must have some kind of physical disability that didn't allow him to go beyond his computer. At least that was always the mental image I had in my mind's eye. Probably unfair of me, but there you go. It seemed like he was getting increasingly bored with actual economics discussions and really wanted to pick arguments in order to get attention. Very Trump-like.

Sadly, there aren't a lot of intelligent conservative voices over at Econbrowser anymore. Just a lot of blowhards like sammy and Bruce Hall. We no longer hear from PeakTrader and CoRev, but they were bozos and didn't contribute anything of value, so no great loss there. I don't always agree with Steven Kopits, but he is at least serious and deserving of my attention. And although I don't agree with Rick Stryker, Jr and I find his political philosophy utterly amoral, he at least presents challenging and well reasoned arguments.

ilsm said...


Wiki article on US' National Guard:

According to US Constitution "Article I, Section 8; Clause 15, the United States Congress is given the power to pass laws for "calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions."

The 2008 NDAA addressed the president federalizing the national guard, I am sure laws existed prior to that which enabled Ike to act in Little Rock.

I was never a member of the National Guard of any state my time was with Air Force reserve, a component of the Dept. of Air Force. I did on occasion work with Guard units and personnel. Not so different than my experience in the federal reserve, except they could be 'called out' by their governor.

Anonymous said...


Interesting and historically worth knowing. said...


Generally agree with your comments on MH, although I never particularly thought of him having a disability. Frankly one reason I thought he might be unemployed was that he may have gotten in trouble for harassment, or something like that, which would have explained the bizarre intensity of some of his least acceptable comments, the ones he seems to have gotten into the most trouble with MC over.

As it is, despite some inquiring, I have no answer whether his current silence there is voluntary or due to having been banned.

I also agree that the quality of the Trumpanzees there has declined somewhat, although some of that has been that they have tended to be outnumbered and generally intellectually outgunned. said...

2slug (anf pgl),

I have it on good authority that MH has not been banned but has apparently withdrawn from EB of his own volition for now for reasons unknown.

Fred C. Dobbs said...

(As to 'V-shaped recoveries', judging only from the stock market, it looks
to me like investors continue to rotating holdings. Today, for example, they
are moving from 'value' to 'growth', i.e. high-tech. When it suits them,
they will rotate back. Likewise from mid-cap to large-cap. This
can't be considered a genuine economic recovery IMO.)

(In other news...)

Health officials say the increased caseload in the US is not solely the result of more testing

NY Times - June 22

As the curve of infections in the United States begins to bulge again after flattening in the spring, the Trump administration tried to reset expectations about its efforts to contain the coronavirus and acknowledged that there would most likely be another wave of cases this fall.

Nationwide, cases have risen 15 percent over the past two weeks, with the most significant increases reported in the South, West and Midwest.

California, the most populous state, reported 4,515 new cases on Sunday, setting a record for the highest daily increase in the number of infections since March. And Missouri and Oklahoma also broke records for the number of new cases reported in a single day. ...

The new infection figures were released after a top White House official said that the federal government was working to replenish the national stockpile of medical equipment and supplies in preparation for another surge of the virus this fall.

The official, Peter Navarro, the White House director of trade and manufacturing policy, told CNN that the effort wasn’t necessarily an indication that the wave would come.

“We are filling the stockpile in anticipation of a possible problem in the fall,” Mr. Navarro told Jake Tapper on the CNN program “State of the Union.” “We’re doing everything we can.”

Mr. Navarro also said that a comment by President Trump over the weekend about wanting to slow down virus testing had been “tongue in cheek.”

At his campaign rally in Tulsa, Okla., on Saturday, Mr. Trump said: “When you do testing to that extent, you will find more cases. So I said to my people, ‘Slow the testing down, please.’”

Public health experts on Sunday directly contradicted Mr. Trump’s recent promise that the disease would “fade away,” as well as his remarks to a largely maskless audience at the Tulsa rally.

On “Face the Nation” on CBS, Dr. Scott Gottlieb, the former commissioner of the Food and Drug Administration, said, “We’re seeing the positivity rates go up. That’s a clear indication there is now community spread underway, and this isn’t just a function of testing more.” ...

Fred C. Dobbs said...

Trump Refuses to Say Whether He Ordered to Slow Down Coronavirus Testing

via @MotherJones - June 22

... President Donald Trump sent his aides scrambling this weekend after his trip to Tulsa, Oklahoma, where he revealed during his first campaign rally since the lockdown that he had recently ordered health officials to “slow down” coronavirus testing.

Trump’s logic for scaling back a crucial tool for fighting the pandemic was that testing—rather than relaxed social distancing measures as health officials have warned—was to blame for the steady rise in new coronavirus cases. The remarks sparked alarm, and the White House went into overdrive to deny their seriousness.

There are plenty of reasons to doubt the White House’s “tongue in cheek” defense but now, we have one more. ...

(Video at the link. About 45 sec in, Trump says "We're way
ahead of ourselves... We've done too good a job testing...")