2020: the economics of the one of the worst years in American History. How it started?
Let’s examine the state of America in January 2020. Unemployment was very low and dropping annually. The stock market was at its highest ever with the Dow Jones Industrial Average reaching 29,000. These two economic measures are typically used to assess the health of the U.S. economy while other factors such as labor participation rate, commodities prices, Gross Domestic Product, and debts levels round out the economic picture. Overall, debt was increasing but income at individual, corporate and federal levels were rising in part due to tax cuts in 2017 and growth in most areas of the economy .
The national unemployment rate was 3.6%, down almost a half of a percent, year over year. This was the lowest rate (favorably viewed) since 1969 when the rate was 3.6 percent, GDP growth was 3.1% and inflation was 6.2%. In 2019, GDP growth was much less at 2.2% but inflation was much lower at 2.3%. While the U.S. maintained forces in the Middle East as part of the War on Terror, it was not committed to a massive military conflict in Vietnam as in 1969. Fast forward to September / October 2020 when the unemployment rate was 7.9%. On its face, it would appear to have doubled yet the impact of covid-19 lockdowns and its larger impact on the economy was massive. Peak unemployment during the covid pandemic reached 14.7, the highest national rate since the Great Depression when it reached 24.9% in 1933. Franklin D. Roosevelt, like Donald Trump can not be blamed for the economic crisis as each faced yet criticisms over their handling and each can be analyzed for their handling.
The stock market as measured by the Dow Jones Industrial Average was 28,538 at the close of trading on New Year’s Eve 2019. This movement continued upward until its peak of 29,551 on February 12th, as covid-19 fears became widespread. Subsequent sell offs and uncertainties in the market led to the DJIA settling at a low of 18, 591 on 3/23/2020. The rebound came just as quickly as the Dow reached 29,000 by September with mixed levels until the November elections. Since, November the general stock market has mostly been in rally mode with new peaks reached and new trading patterns unveiled. See video below for Game Stop overview.
Using these two indicators; the Dow Jones Industrial Average and the national unemployment rate, we can conclude that this period qualifies as an official recession as the economic indicators show a negative business cycle of 6 months or more. It is worth noting that the recession was much less severe than original predictions of a protracted recession at more dire levels. Some predicted another economic depression that did not manifest – at least, not yet.
As quick as recession spread, recovery would follow. Tomorrow, we examine the 2020 recovery.