The Washington Post - USA (2020-07-31)

A18 EZ RE THEWASHINGTONPOST.FRIDAY,JULY 31 , 2020

becausethe economyisunlikely
to experience another collapse
likeitdid in thesecond quarter.
Still, whileatailspin at the
second-quarter rateisunlikely,
the nascentrecovery that began
appearing earlierthissummer
appears to be in jeopardy.
On Wednesday, Federal Re-
serve Chair Jerome H. Powell
warned thatthe mostrecent
surge in coronavirus infections
has begun to weigh on theecono-
my,while reemphasizingthata
recoverycannot be sustained
unless the virusisundercontrol.
“We’restilldiggingout of a
hole, areally deephole,” said Ben
Herzon, executive director of
IHS Markit. “The second-quarter
figurewill just tell us thesizeof
the holewe’redigging outof, and
it’s abig one.”
Thursday’sreport helps ex-
plainwhichparts of theeconomy
suffered as people stayed home,
cutback their spending and
suddenlyoverhauledtheir rou-
tines. With retail stores shut-
tered andpeopleswapping out
their workwardrobes for lei-
surewear, clothingand footwear
sales dropped. Thepandemic
alsotriggered acollapse in oil
prices, exacerbated by lowergas-
olinesalesand dampenedtrans-
portation services,asAmericans
stayed home and avoidedcom-
mutesor basic errands.
Health care fell offasthe
pandemicpushed peopletocan-
cel non-emergencyvisits and
procedures, triggeringlayoffs
within the health-careindustry.
Restaurant closures fueleda
dropin foodservices.
But even as the economy
contracted at an unprecedented
pace,someindustrieswereatan
advantage.Along with recre-
ationalgoodsand vehicles and
farm inventories,autosales
rose.Inventories are at historic
lows, with so manyfactories
shutteredor scaledback,said
Michelle Krebs, senior director
of automotiverelations for Cox
Automotive and executiveana-
lystfor Autotrader.Krebssaid
thatcar buyers have proved to
be “surprisinglyresilient”and
thatthere aresigns thatpeople
are purchasingcars to avoid
public transit and safely get
around.
In another example of the
recession’s unevenimpacts, the
housingmarket has been a
strong spotfor the economy, as
wealthier Americans are seizing
cheap mortgage rates andbuying
larger homes.Renters, mean-
while, are increasingly worried
about evictions andfallingbe-
hindontheir payments.
Plus,realdisposable personal
incomerosenearly 10 percent.
That’s mostly aresult of direct
stimuluschecks andenhanced
unemployment benefits under
the CaresAct —programsthat
wereoriginally intendedto pro-
videshort-term reliefand carry

GDPFROMA

millionsof Americans throughto

the recovery. Congress is divided

overanother roundofstimulus,

includingoverwhethertoextend

enhanced unemployment ben-

efits, which otherwise expire Fri-

day.

This wasthe worst quarter

since at least1875, accordingtoa

historicaldata setcreated by

economists NathanS.Balke and

RobertJ.Gordon. Therunners-

up are the thirdquarter of 1893,

whenalegendarypanicand run

on thebankscaused acrippling

depression, and the fourthquar-

ter of 1937, when the Great

Depression returnedwith aven-

geance. Thosequarterssaw de-

clines of 8.4percentand 7.2per-

cent,respectively.

Untilnow,noquarter in the

modernera of GDP measure-

ment, whichbegan in 1947, had

seenadecline of even 3percent.

Theworstwas 2.6 percent in

1958, amidadepression that

coincided with adevastating

pandemicknown as the “Asian

flu.”

In California,Arizona,Texas,

Florida and Michigan, intensify-

ing outbreaks have forced au-

thoritiestodial backtheirre-

openingplansand restrictbusi-

nessactivityonceagain.

Newclaimsfor unemploy-

mentbenefits rosefor the second

weekinarow, markingthe 19th

straight weekof morethan 1mil-

lion jobless claims,adding to

worriesabout how vulnerable

muchof the workforce remains

as enhancedunemployment ben-

efitsare due to expire.

Marketsfeltthe shockof

Thursday’sGDP figures.By early

afternoon,the DowJonesindus-

trial averagehad recovered some

of its losses fromearlierinthe

day, ending the daydownless

than1percent, or 225 points.

Forall the talk of aV-, W- or

U-shaped recovery, Sung Won

Sohn,professorof financeand

economics at Loyola Mary-

mountUniversityand president

of SS Economics, said a“Y-

shaped,”or“sideways,”expan-

sion is in progress.

“The pandemic has created

winners(topportionofYside-

ways) and losers (bottom portion

of Ysideways) wideningthe

economic cleavage in the econo-

my,” Sohnwrote in an analyst

noteThursdaymorning.

Theeconomy collapsed in

Aprilon the heelsof anation-

wideshutdown. That month, the

unemploymentratespiked to the

highestlevel since the Great

Depression. Aprilretail sales

plunged 16.4percent,the largest

dropon record.

In May, big-namecompanies

started filing for bankruptcy, in-

cluding retailer J.C. Penneyand

rental car companyHertz. At the

sametime,states began easing

restrictions on gatherings and

businesses, ignitingnew hopes

for asurprisingturnaround. The

Mayunemploymentrate

dropped as the labor market

picked back up and retailsales

popped17.7percent. President

Trumpand other WhiteHouse

officials saidthe nationwas on

track foraV-shaped recovery,

even as the Federal Reserveem-

phasizedthatcontrolling the vi-

rus was keytoasustained turn-

around.

Theeconomyadded arecord

number of jobsin June,asthe

workforce recoveredabout1out

of3jobs lostduring the crisis.

But measurements for June’s re-

port were taken whenthe wave

of coronavirus cases was at alow

ebb in the UnitedStates —

states setnew infection records

in July alone.

There are newsignsthe eco-

nomic recoveryisfaltering,and

Powell,the nation’s top econo-

mist, has noted that rising coro-

naviruscasesare beginningto

weigh on the economy. On

Wednesday, Powell saidsome

measures of consumer spending,

based on debitcard and credit

carduse,havemoveddownin

the pastmonth. Hoteloccupancy

rates have flattenedout, he said,

and Americans are notgoingto

restaurants, gas stations and

beautysalons as muchas they

had beenearlierinthe summer.

“On balance,itlooks likethe

data are pointingtoaslowingin

the paceof the recovery,”Powell

saidduring anewsconference

Wednesday. “I wanttostressit’s

too earlyto sayboth howlarge

thatisand howsustained it will

be.”

Kelly Lightfoot, 50, has run

HappyKidsMaui,achild-care

business, for morethantwo

decades.In good times, shegoes

“100miles an hour” managing

the office staffand between 50

and 80 nannieswhowatch the

children of vacationing tourists

on three islands.

But in March,Hawaii’sgover-

nor shut the statedownand

adoptedastrict quarantine that

all but stopped the flowof visi-

tors fromthe mainland.

Business cameto ascreeching

halt,she said:“Itwas our spring

break. We had big,giantbook-

ingsfor March,April,May—I

had to refundall thatmoney.”

Arecent Yelp analysisfound

thatHawaii has beenhit harder

by coronavirus-related business

closures thananyotherstate.

Lightfootsaidshe has slashed

her spendingduringthe shut-

down.All the paychecks and

expensesshewould have put

intothe islands’ economybe-

tween Marchand September

have gone for good. But she is

still payingtwooffice staffers,

because she is determinedto

reopenand cannotafford to lose

skilledworkers.

“We’ve beenaround for too

longtojustthrowin the towel,”

Lightfoot said.“I started from

prettymuchnothing.I’m sureI

can do thesame thingagain.”

Fortwo decades, RichardMer-

le, 66, has moved works of art

between galleries,museums,stu-

diosand tonyresidences in and

around NewYork City. Hiscom-

pany Lateral Move wasstable,

and he hopedto sell it to fundhis

retirement. Nowit’sessentially

worthless.

Merle andsome of the best

employeesinhis specialized

crewwere in high-risk groups,so

theystoppedworkassoon as the

stateshut downin March,atthe

tailend of the artworld’sbusy

season.

During the lonely weeksofthe

shutdown,he waveredbetween

determination(“I’ve worked too

hardfor thisbusiness,Ican’t

close it.”) and acceptance

(“There’s apandemic in the city.

We can’t justkeep running

around.And we don’t know what

the futureholds.”). Meanwhile,

the pandemic draggedonwith

no end in sight.

“InMay,Idecided therewas

no point in reopening,” said

Merle, whohas soldhis box

truck,tools and other assets.“I

justdidn’t seeafuture for the

business. Isaw going backinto

debtand scrounging for the next

couple years.”

[email protected]

[email protected]

Economists see signs that the recovery is stalling

CRAIGHUDSONFOR THE WASHINGTONPOST

SpeedboatCoffeein Portland,Ore., is amongthe thousands of businessesthat havecut staffand lost revenueduringthe pandemic. Federal

ReserveChair JeromeH. Powell reiterated Wednesday thatarecoverycannot be sustainedunlessthe coronavirus is under control.

BYANDREWVANDAM

TheCommerce Department

opened Thursday’s announce-

mentof second-quarter economic

growth withan eyeball-blistering

observation: “Realgross domestic

product (GDP)decreasedatan

annual rateof32.9percentinthe

secondquarter of 2020.”

That32.9percentrepresentsthe

loss of athird of the economy. Let

thatsinkin.Nowletitwriggleback

out again—it’snot exactly true.

Why? TheCommerce Depart-

mentreports quarterlyGDP at an

annualratetoalloweasycompari-

sonstoother timeperiods.Re-

movethe annualization, and we

seetheeconomycontractedastill-

abysmal9.5 percent.

In other words,32.9percent is

howmuchthe economy would

shrinkifthebusinessclosuresand

spending cuts of the secondquar-

ter increased at acompounding

9.5percentforanentireyear,after

adjusting forseasonality.

Think of whatanapocalypse

that wouldbe. Annualization as-

sumes the businessesclosedthis

quarter wouldremain closed, and

thatwe’d seejustasmanyclosures

in thethird quarter.And we’d ex-

pandtheclosures againinthe

fourth quarterand againin the

firstquarterofnextyear.

In otherwords, takethe devas-

tation you sawinthe pastthree

months and multiplyitbyfour.

That is essentially what annualiz-

ing does, thoughcompounding

means the actualmath is abit

morecomplicated.

TheCommerce Department’s

affectionfor annualizationdoes

not stop at percentagechange.It

alsoreports quarterly GDPtotals

at an annualized rate—when

Commerce says GDP was at

$17.2trillion in the pastquarter,it

meansGDPwould be at $17.2tril-

lionifthisquarter’s $4.3trillionin

output continued for afull year.

Withthatinmind, the chart

below shows U.S. GDP,adjusted

forinflationand reported as quar-

terly totals, as suggested by reader

NickEstes.

Thechartdoesnot crashbya

third, obviously. A32.9percent

dropwould mean aloss of about

$1.6 trillion from last quarter.In

fact,theeconomyshrank$0.45tril-

lioninthe secondquarter,onthe

heelsofa$0.06trillion(1.3percent)

decreaseinthefirstquarterof2020.

To see athird of the economy

trulyvanish,look at the GreatDe-

pression.From 1929to 1933,GDP

contracted about36 percent,ac-

cordingto data collected by econo-

mists NathanBalkeand Robert

Gordon.Thatistheactualcontrac-

tion —noannualization in sight.

Commerce Departmentdata,

whichgoesbackto1947, showsthe

previous worst quarteronrecord

was a2.6 percent dropin1958.

That contraction happenedto co-

incide with the“Asianflu”pan-

demic,whichclaimedaboutamil-

lionlives worldwide.

WithBalkeandGordon’s expand-

ed data, we can also establishthata

drop of 9.5 percentmakes this quar-

ter the worstsince at least 1875. The

next worstwere in 1893,whena

legendarypanicand run on the

banks resulted in along,painful

depression, and 1937,when the

GreatDepressiontookaturnforthe

worse.Then, we sawdrops of 8.

percentand7.2percent,respectively.

[email protected]

ANALYSIS

Did athird of the

economyreally

vanishin just

threemonths?

1929−19 37

1937−19 45

1945−

1948

1960−

1981−

1990−20 01

2001−2007 2007−

2019

− 50

0

50

− 25

25

75

100%

0

Yearsafter recession began

12345678910 11 12

U.S. economic output,1900to 2020

Quarterly GDP, inflation-adjustedto constant 2012 dollars

EveryU.S.recession andrecovery since 1900

Change from wheneach recessionbeganin inflation-adjustedGDP

Note:Seasonallyadjusted

Sources:Nathan Balkeand RobertGordon(before1947);Commerce Department(after 1947)

$4.30 trillion

in Q2,

down9.5%

$4.75 trillion

in Q

2020

0

1

2

3

4

$5 trillion

1900 2020

THE WASHINGTON POST

Recessions

N

Business

Child-carecrisis:With day-carecenters

shutteredor severelyrestrictingenrollment,and

schooldistrictsoptingfor remotelearning,many

womenare findingthey just can’tmaketheir

jobs workduringthe pandemic,which couldhave

lastingconsequences.

Arts &Style

“Sonsof Ethiopia”:In 1984,aquartetof local

Ethiopianexpatmusiciansrecordedan albumthat

soundedlike nothingelse.The albumwas lost to

time.Untilnow.

Travel

Houseboatvacation:Onlakesand waterways

acrossthe nation,self-pilotedhouseboatrentals

offeraway to get awayfromcrowdswhileenjoying

the waterwith asmall groupof familyor friends.

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