By Moon Of Aalabama
June 05, 2020 “Information Clearing House” – The U.S. has a service economy. Some 70% of its gross domestic product is generated by personal consumption. The emergency measures taken to slow down the covid-19 pandemic decreased consumption by a huge margin. The GDPNow model by the Federal Reserve Bank of Atlanta shows the slump:
The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our GDPNow forecasting model provides a “nowcast” of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the U.S. Bureau of Economic Analysis.
Latest estimate: -52.8 percent — June 1, 2020
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2020 is -52.8 percent on June 1, down from -51.2 percent on May 29.
The GDPnow model gives a snapshot of GDP on any given day. It is not the GDP for the year, which will be down much less, but just a moment in time.
With the lockdowns loosening the GDP will certainly increase again. But a haircut missed due to the lockdown will not result in a desire to get two haircuts. The meals not eaten in a restaurant during the last two month will not be made up by additional meals eaten after the reopening. The losses are for real.
The unemployed and the economy will not be impressed by Trump’s current fake ‘law and order’ show or by his pandering to Evangelicals.With the end of the lockdown half of the 40 million currently unemployed will likely soon be back to work. The jobs of the other 20 million will not come back for a long time. The travel and hospitality sectors will be most effected. People who do not make money can not spend any.
If Trump is as smart as he claims to be he will ask Congress for a huge amount of money to be spent on infrastructure programs over the next three years. That money should be shared for projects on the national, state and local level. There are plenty of bridges, roads and rails that need repairs or replacements.
But Trump isn’t as smart as he claims and the people around him, as well as Trump himself, are from the FIRE economy – the Finance, Insurance, and Real Estate sectors. Such people do not value the real economy where real stuff is made and used.
The stock market, on which Trump is fixated, has long ceased to be a reflection of the real economy. Propping it up again and again, as the Fed and the Treasury do, may well enrich Trump’s friends, but it does nothing for the voters he needs to get reelected.
Does he not understand that?
And why, by the way, ain’t the Democrats out in front demanding that more be done to create new jobs? They seem to have totally vanished from the scene.