When experts talk about a roller-coaster economy, they’re usually taking some poetic license (yes, economists have a poetic side).
But for 2020, the description is more apt than ever.
The economy did indeed plunge, falling at an annual rate of 32.9 percent in the second quarter when stores shuttered and so many millions sheltered at home. (Unemployment lurched from a 50-year low to 10.2 percent in July).
That was enough for the official scorekeepers to call it a recession after just a few months of decline.
But with most stores open again to some degree and much of the nation taking extra precautions, the economy is rapidly climbing up the next hill.
After the second quarter, which the Conference Board noted was the biggest decline in GDP in 75 years, the forecasting group’s base case forecast sees GDP jumping back up at an annual rate of 26 percent in the third quarter before leveling out with a milder contraction of 1.6 percent in the fourth quarter.
“Given the severity of the economic contraction in the second quarter, even a moderate improvement in economic activity over the summer yields a strong growth rate in the third quarter,” the Conference Board said. “In our baseline forecast, consumer spending is the largest driver of growth over the summer but then stalls as high levels of unemployment damage spending later in the year.”
The net effect, if all this plays out, is a big step back and an economy that’s 4.9 percent smaller in 2020 than in 2019.
But baked into any forecast are myriad assumptions — about future COVID-19 outbreaks, the development of a vaccine and how the government, consumers and businesses react to it all — that make it still a guess how long the rollercoaster ride will last.
Since March, the government has pumped trillions of dollars into the economy, shoring up consumption and supporting the suddenly unemployed.
Lawmakers on Capitol Hill are still haggling over the size and shape of the next batch of aid, dubbed Phase 4. How large and effective that rescue package is could ultimately push the economy one way or the other. Meanwhile, the Trump administration has issued its own aid package, which provides some relief to consumers but not as much as Democrats are hoping for.
Doug McMillon, president and chief executive officer of Walmart, told analysts this month: “There’s just a lot of uncertainty right now and so much variance in how customers are feeling about their situation. And this decision that the government’s got to make about Phase 4 investments is an important one, and I think it’s really important as it relates to small business. And this economy and this country are driven so much by small and medium-sized businesses that we want to see something happen there that will help support those folks.
“I think the larger companies are getting things sorted out and the government is paying attention to the larger companies that need some sort of financial support,” McMillon said. “But it’s that small business group that, in particular, I think we all need to keep our eye on and will probably determine just what this economy looks like on the other side of the Phase 4 stimulus.”