The Recession Is Over! But Don’t Get Too Excited Just Yet.

Next Thursday (October 29) the Bureau of Economic Analysis will release its first estimate of economic growth for the third quarter of 2020. Almost certainly it will set records for the greatest absolute and percentage quarterly Gross National Product (“GDP”) gains since the government started calculating national income accounts just after WWII.

Time to pop the champagne? Not quite yet. Just because a recession is officially over doesn’t mean that the economy has healed. On the contrary, a recession is deemed to have ended once it hits bottom, not when it gets back to its pre-recession peak.

If GDP grew by, say, 30% in the third quarter—consistent with consensus forecasts—the level of economic output would still be $800 billion or 4% below its year-end 2019 level. That may not sound like much, given the wild gyrations in economic activity during this pandemic, but that’s still nearly twice the entire 2.1% decline in GDP averaged during the last five recessions. Further, employment at the end of September was still down 10.3 million jobs or 6.8% from the end of last year. So, still a long way to go.

The key takeaways from my analysis of the current and recent recessions:

• With record economic growth and hiring this summer, we may soon learn that the recession is already technically over.
• But the end of the recession doesn’t mean the economy has recovered, only that the worst is behind us in terms of lost economic output, income, and jobs.
• Expect the recovery in GDP to take another year, while regaining the lost jobs will take closer to two years. That’s just to get back to pre-pandemic levels. Getting back to the former trajectory—regaining the lost growth as well as the lost output and jobs—will take longer still.
• Investors should be mindful that the path forward will be slow and uneven, even after the recession is declared to be over.

You may read my analysis here.