Despite a surprising but suspect jobs boost in May, the United States' economy remains in the early stages of a recovery from an ongoing economic recession. No sudden recovery, such as the widely bandied "V-shaped" recovery trumpeted by the Trump administration, is at all likely given this scenario.
The nonpartisan Congressional Budget Office (CBO) warns the U.S. might not see an early return to pre-recession levels of economic growth. More realistically, emerging signs suggesting a strong recovery might just point to a partial recovery that stalls and by doing so confirms serious recession conditions still hound the economy.
What the CBO sees as the more plausible short-term outcome is a partial turnaround. The CBO's May macroeconomic forecast sees a partial economic recovery of anywhere from 70% to 90%. What follows will be a tortuous trek towards a full recovery that might occur only in 2030.
CBO now estimates that inflation-adjusted gross domestic product (GDP) won't return to pre-pandemic trend levels until 2030. This forecast also translates into high unemployment for nearly a decade. Worse, U.S. GDP will shrink by several trillion dollars in that time span.
The realistic expectation is a rapid recovery for a couple of quarters that will later begin to slow before full recovery is reached.
There is, however, a way around this looming catastrophe. It involves more stimulus -- lots of stimulus -- and a clear strategy for full economic recovery.
"If future federal policies differ from those underlying CBO's economic projections -- for example, if lawmakers enact additional pandemic-related legislation -- then economic outcomes will necessarily differ from those presented here," wrote the CBO in its report.
CBO said a key indicator more legislation to address the economic emergency will help is that nominal GDP trends are much worse than inflation-adjusted ones. It pointed out that in an overstimulated economy, inflation will spike as spending levels exceed the economy's ability to actually produce things. It said the U.S. isn't headed towards this fate.
On the other hand, the U.S. is on track toward a depressed economy despite abating economic damage from the pandemic. This is because lost income during the crisis prevented households and local governments from spending money.
This being the case, the cure is flooding the economy with money, which is another way of describing a monetary stimulus. CBO pointed out the current $2 trillion stimulus approved by Congress is seeing increased spending levels without the accompanying rise in inflation.
On Tuesday, the National Bureau of Economic Research (NBER), the 100 year-old private nonprofit research organization well-known for setting the start and end dates of U.S. recessions, declared the U.S. is in an economic recession. It said this recession began February.
