Economic Outlook
The Covid-19 recession is in the books as one of the deepest — but also the shortest — in U.S. history, the official documenter of economic cycles said Monday.
According to the National Bureau of Economic Research, the contraction lasted just two months, from February 2020 to the following April.
Though the drop featured a staggering 31.4% GDP plunge in the second quarter of the pandemic-scarred year, it also saw a massive snapback the following period, with previously unheard of policy stimulus boosting output by 33.4%.
“In determining that a trough occurred in April 2020, the committee did not conclude that the economy has returned to operating at normal capacity,” the NBER said in a news release. “The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak. The basis for this decision was the length and strength of the recovery to date.”
The pandemic recession was unique in a number of ways, not least how fast the contraction happened and how ferocious the recovery was.
Conventionally, a recession is defined as two consecutive quarters of negative GDP growth, which this recession met after the first quarter in 2020 fell 5%. But the NBER noted that in normal times, a recession lasts “more than a few months.”…read more.
Some of airlines’ most in-demand flights this summer don’t even leave the ground.
Flight simulators from Atlanta to Dallas to Miami and elsewhere are humming as airlines scramble to get hundreds of pilots trained to meet a surge in bookings that kicked off this spring as vaccinations rolled out and Covid-era restrictions eased.
Domestic leisure travel has recovered to 2019 levels, while business travel is also rebounding, airline executives said this month.
Airlines have received $54 billion in federal aid since March 2020 in exchange for not laying off workers. But voluntary departures, changed fleets and the rapid rise in travel demand have created a need for pilot training that industry experts say is without parallel. Reduced flight schedules also meant pilots weren’t getting in their minimum takeoffs and landings required to maintain their flying status. Training pilots on new aircraft can take weeks while annual retraining can take a few days.
“What is unique about this experience is the drop-off in business [early in the pandemic] was an existential threat to the business,” said Bryan Terry, managing director and global aviation leader at Deloitte. “Then what came, the unexpected part, the return to travel came faster than expected.”
That “puts a very tight timeline” on the pilot training, he added.
Airline executives urged pilots and other employees to take early retirement and leaves of absence at reduced pay to cut expenses. They parked hundreds of jets, retiring some planes altogether…read more.
Canadians are entering the second half of the year more confident about their economic prospects than they’ve ever been.
Consumer sentiment marched higher to a new record last week, according to polling by Nanos Research Group for Bloomberg News, driven by optimism about the outlook for the economy and growing job security.
The numbers will stoke confidence among economists and policy makers that households will be in a spending mood as pandemic restrictions are lifted, particularly given Canadians are supported by a massive stock of savings accumulated during the crisis. After a rough patch in April and May during a spring surge of COVID-19 cases, the Canadian economy is seen rebounding sharply in coming months to pre-pandemic levels as consumers, and potentially businesses, ramp up spending.
The Bloomberg Nanos Canadian Confidence Index jumped to 66.4 last week, the highest reading since surveys began in 2008. The gauge has historically averaged around 56 and had never broken the 63 barrier until recently.
Separately, the Bank of Canada will release its latest quarterly survey of company managers at 10:30 a.m. Ottawa time, and economists anticipate business sentiment too has risen to near records.
Every week, Nanos Research surveys 250 Canadians for their views on personal finances, job security and their outlook for both the economy and real estate prices. The confidence index represents a rolling four-week average of about 1,000 responses…read more.
Households added $13.5 trillion in wealth – the biggest increase in three decades.
The coronavirus pandemic plunged Americans into recession. Instead of emerging poorer, many came out ahead.
U.S. households added $13.5 trillion in wealth last year, according to the Federal Reserve, the biggest increase in records going back three decades. Many Americans of all stripes paid off credit-card debt, saved more and refinanced into cheaper mortgages. That challenged the conventions of previous economic downturns. In 2008, for example, U.S. households lost $8 trillion.
In some ways, the singularity of the Covid-19 recession—and the recovery—shouldn’t surprise. The scope of the pandemic was unprecedented in the modern era. So was the government’s financial response. The U. S. borrowed lent and spent trillions of dollars to keep the economy from plunging further than it did.
These actions were at the center of the unusual nature of both the recession and the recovery. They have also powered much of the stock market’s unexpected boom. Rock-bottom interest rates lured more investors into stocks; workers stuck at home tried their hand at trading and tech giants gained even more ground during the shutdown.
The stock market, in turn, became the driver of the household wealth gain, accounting for nearly half the total increase.
That has produced a lopsided distribution of the wealth gains, since well-off households are more likely to own stocks. More than 70% of the increase in household wealth went to the top 20% of income earners. About a third went to the top 1%. Click here for full article.
The Federal Reserve has been bleating that inflation is “transitory”–but what about the real world that we live in, as opposed to the abstract funhouse of rigged statistics? Here’s a simple test to help you decide if inflation is “transitory” in the real world.
Let’s start with some simple stipulations: price is price, there are no tricks like hedonics or substitution. Nobody cares if the truck stereo is better than it was 40 years ago, the price of the truck is the price we pay today, and that’s all that matters.
(Funny, the funhouse statistical adjustments never consider that appliances that used to last 30 years now break down and are junked after 3 years–if we adjusted for that, the $500 washer would be tagged at $5,000 today because it has lost 90% of its durability over the past 30 years.)
Second, inflation must be weighted to “big ticket” nondiscretionary items. The funhouse statistical trickery counts a $10 drop in the price of a TV (which you buy every few years at best) as equal to a $100 rise in childcare, which you pay monthly. No, no, no: a 10% rise in rent, healthcare insurance and childcare is $400 a month or roughly $5,000 a year. A 10% decline in a TV you buy every three years is $50. Even a 50% drop in the price of a TV ($250) is $83 per year–absolutely trivial, absolutely meaningless compared to $5,000 in higher big-ticket expenses.
You can forego the new TV but not the rent, childcare or healthcare. That’s the difference between “big ticket” nondiscretionary and discretionary (meals out, 3rd TV, etc.).
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