How’s the Recovery Coming Along? Not Very Well at All

Is the worst of the economic collapse over? Not really.

The economy is off the bottom, but that’s only to be expected after the historic collapse of March–May 2020 and the stock market crash in March and April. The question now is not whether we’re growing again. We are. The questions are how fast is that growth, and how long will it be before we return to 2019 levels of output?

And this question applies not just to the U.S. but to the entire global economy, especially the large producers such as China, Japan and the EU. Here, the news is not good at all.

Recent data suggests that we may not reach 2019 output levels until 2023 at the earliest, and that something close to full employment may not return until 2025. A simple example will make the point.

Assume 2019 GDP has a normalized level of 100. Now assume a 10% drop (that’s about how much the U.S. economy will decline for the full-year 2020 according to many estimates). That moves the benchmark to 90 in 2020. Now assume 5% growth in 2021 (that would also be the highest growth rate in decades). That will move the benchmark back up to 94.5.

Next assume growth in 2022 is 4% (that would also be near record annual growth for the past three decades). That would move the benchmark up to 98.3.

Here’s the problem. An output level of 98.3 is still less than 100. In other words, back-to-back growth of 5% in 2021 and 4% in 2022 is not enough to recover the 2019 level after a 10% decline in 2020.

The situation is even worse than I just described, according to this article. Analyst Jeff Snider points out that China PMI figures have recently been 50.9 (manufacturing) and 54.4 (services).

The Wall Street happy talk brigade is cheering these numbers because they “beat” expectations and they show growth (any number over 50 indicates growth in a PMI index series). Snider says that showing growth is completely expected. The problem is that growth is so weak.

A strong bounce back from a collapse should produce PMI readings of 60 or 70 if a robust recovery were underway. It’s not. And there’s a danger of slipping back into recession if a new wave of the coronavirus emerges.

The best case is that it will take years to get back to 2019 levels of output. The worst case is that output will drop even lower as the recovery fails and the recession returns. We’re not really in a recession right now. We’re in a depression and will remain there for years.

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