An Economic Rebound at the Ready?

If you're in a consumer-facing business, this economic downturn has been brutal. The COVID-19 pandemic has destroyed travel and entertainment, retail, and millions of mom-and-pop businesses. Yet, when the Bureau of Economic Analysis (BEA) released its top line gross output earlier this week, it showed that the economy is more resilient than it looks. That's because the GO measures total spending at all stages of the supply chain, while the GDP only measures the final output; i.e., finished goods and services bought by consumers, business and government.

According to the Wall Street Journal, in past recessions, GO declined much faster than GDP and gave an earlier view of the depth of the recession. During the financial crisis in the fourth quarter of 2008, for example,GO fell 6.6%, compared with a 2% drop in GDP—more than three times as fast. The GO decline showed that even while consumer sales held up, businesses were slowing investment in future production. But this recession IS different, insist analysts, at least when it comes to GO. In both the first and second quarters, GO fell slightly less than GDP. In the second quarter, real GO declined by 8.4% while real GDP decreased by 9% (in quarterly, nonannualized terms). GO didn’t collapse by multiples of GDP as it has in past recessions. The decline was close to 1-to-1, rather than 3-to-1.

But other analysts suggest the gross output idea is a no-go. While growth is expected to continue, a panel of 52 economists has lowered its forecast for the rate of growth for the last three months of this year and for 2021, the National Association for Business Economists said. Economists cut their forecast for October-December growth to a 4.9% annual rate from their prior estimate in June of a 6.8% rate. For all of this year, the economy will contract by a 4.3% annual rate. The median forecast for real GDP growth for 2021 was lowered to a 3.6% annual rate, compared with a 4.8% rate forecast in the last survey in June.