The U.S. Is Officially in a Recession. Will It Actually Become a Depression? Government Job Losses Are Piling Up, and It Could Get Worse

The U.S. Is Officially in a Recession. Will It Actually Become a Depression?

  • Recessions and depressions are periods of significant decline in economic activity. But there’s no exact definition for either one.
  • We’ve only had one depression in modern times: the Great Depression, the worst economic downturn in the history of the U.S. and the industrialized world.
  • A “depression” label could be appropriate if the unemployment rate exceeds 20% for a long period of time. Economists think that’s unlikely.

 

Government Job Losses Are Piling Up, and It Could Get Worse

Jobs with state and city governments are usually a source of stability in the U.S. economy, but the financial devastation wrought by the coronavirus pandemic has forced cuts that will reduce public services — from schools to trash pickup.

Even as the U.S. added some jobs in May, the number of people employed by federal, state and local governments dropped by 585,000. The overall job losses among public workers have reached more than 1.5 million since March, according to seasonally adjusted federal jobs data released Friday. The number of government employees is now the lowest it’s been since 2001, and most of the cuts are at the local level.

“With that comes a decline in essential public services,” Lee Saunders, president of the American Federation of State, County and Municipal Employees, said on a conference call with reporters this week. For instance, “911 calls are taking a long time to be answered.”

Clean drinking water and trash pickups also are being affected in some places, he said.

Tax revenue from businesses walloped by coronavirus restrictions has plummeted, forcing cuts by cities and states that rely on that money. It’s likely to get worse in the coming months unless Congress delivers additional aid to states and cities.

“World Bank. 2020. Global Economic Prospects, June 2020. Washington, DC: World Bank.

[World Bank Report: Global Economic Prospects, June 2020] The COVID-19 pandemic has, with alarming speed, dealt a heavy blow to an already-weak global economy, which is expected to slide into its deepest recession since the second world war, despite unprecedented policy support. The global recession would be deeper if countries take longer to bring the pandemic under control, if financial stress triggers defaults, or if there are protracted effects on households and firms. Economic disruptions are likely to be more severe and protracted in emerging market and developing economies with larger domestic outbreaks and weaker medical care systems; greater exposure to international spillovers through trade, tourism, and commodity and financial markets; weaker macroeconomic frameworks; and more pervasive informality and poverty. Beyond the current steep economic contraction, the pandemic is likely to leave lasting scars on the global economy by undermining consumer and investor confidence, human capital, and global value chains. Being mostly a reflection of the recent plunge in global energy demand, low oil prices are unlikely to provide much of a boost to global growth in the near term. While policymakers’ immediate priorities are to address the health crisis and moderate the short-term economic losses, the likely long-term consequences of the pandemic highlight the need to forcefully undertake comprehensive reform programs to improve the fundamental drivers of economic growth, once the crisis abates.

Economic Optimism Drops to Lowest Level in Nearly Four Years

The IBD/TIPP Economic Optimism Index, a leading national poll on consumer confidence, declined by 5.4% in June. The index’s reading of 47.0 is at its lowest mark since September 2016.

Fed Needs Better Answers on Runaway Markets and Inequality

Federal Reserve officials don’t like to talk about asset inflation.This is hardly surprising. The levels of stocks and corporate bonds, after all, aren’t part of their stated dual mandate of maximum employment and stable prices. Moreover, the central bank has tried desperately…