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Uncertainty surrounds recession and recovery

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WASHINGTON — The economic downturn brought on by the coronavirus pandemic has been officially declared a recession, and it’s too early to know the shape of the recovery, said Jack Kleinhenz, chief economist at the National Retail Federation (NRF).

“Will this recession be briefer than earlier recessions? No one has a crystal ball. And just as it can take months to be certain a recession has begun, it can take time to declare when one is over,” Kleinhenz said in the July issue of NRF’s “Monthly Economic Review.”

“While it would be unusual for a recession to last less than six months, it is possible that the current one could have already ended with May’s rebound,” Kleinhenz said. “The good news is that the recession may have ended as fast as it started. The bad news is there is plenty of uncertainty on the shape of the reopening of the economy, and the recovery will be slow even if we are no longer in recessionary territory.”

The National Bureau of Economic Research ruled last month that the U.S. economy entered a recession in February. Part of the bureau’s definition of a recession is a decline in economic activity lasting “more than a few months,” Kleinhenz noted. But the organization has taken anywhere from six to 18 months to declare that previous downturns were recessions, and just as long to decide if they were over.

Kleinhenz said the stock market is usually seen as a leading indicator that the economy is recovering from a recession, and it has seen a strong recovery since its February crash, closing out its best quarter since 1998 on June 30. While that alone would not spell the end of a recession, payroll losses rebounded by 2.5 million jobs in May, consumer spending was up 8.1%, and retail sales rose almost 18% month over month, though each category remained far below last year’s levels, he noted.

Notwithstanding these upward trends, Kleinhenz emphasized that the economic recovery will still be dictated by whether efforts to end the pandemic are successful.

“Before we prematurely celebrate the return of the consumer, the wave of new coronavirus outbreaks spreading throughout the country are a major threat to the recovery,” he said. “These outbreaks are alarming, and if they accelerate will certainly sway consumer and business confidence, taking a toll on output and employment and prolonging the time it takes to achieve a true economic recovery.”

Real-time economic data seemingly confirm this view. Nonfarm payrolls soared by 4.8 million in June, the largest monthly gain in U.S. history, as states took action to get their economies moving again. But the reopenings helped spur regional spikes in virus cases.


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