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Economy in Brief

U.S. Recession in 2020 Is Defined: Historic, but Brief
by Tom Moeller  July 20, 2021

• COVID-19 effects severely reduced economic output in both March and April of 2020.

• Return to growth began in May 2020.

• Recession was deepest in postwar history.

The National Bureau of Economic Research (NBER) determines the dates when U.S. recessions begin and end. In yesterday's report, the NBER announced that the last recession began in March 2020 when the economic effects related to the COVID-19 virus emerged. It was a brief downturn, lasting just two months. It prompted a record decline of 31.4% (AR) in real GDP in the second quarter of 2020, which followed a 5.0% Q1 decline.

A monthly data set which corresponds to economic peaks and troughs is the Conference Board's Index of Coincident Indicators. This index peaked in February 2020 followed by a 2.0% March decline before plunging 11.8% in April. After that, the index began to rise. The four components of the index are non-agricultural employment, industrial production, personal income less transfers and manufacturing & trade sales. Employment peaked in February of last year followed by a 1.1% March decline and a 13.7% April fall. Industrial production also peaked in February before dropping 3.8% in March and plunging 13.6% in April. Manufacturing & trade sales, adjusted for price inflation, reached their high in February before weakening 3.7% in March and plunging 11.2% in April. Finally, personal income adjusted for price inflation dropped 2.5% in March before April's 5.8% weakening.

On a quarterly basis, the coincident index was off 0.2% (not annualized) in Q1 and 10.3% in Q2. These figures differ from GDP, notably because they do not include housing, outlays on private sector services and government spending.

Recovery from these economic losses was swift and dramatic. Real GDP surged at a 33.4% annual rate during Q3'20, followed by a 4.3% rise in Q4, and a 6.4% strengthening in Q1, 2021. Currently, the Action Economics Forecast Survey calls for an 8.0% surge in Q2. These increases will pull the level of real GDP roughly 1.0% above its previous record high reached in Q4 2019. Looking forward, the latest forecast from the Blue Chip Economic Indicators calls for 6.6% growth this year followed by a 4.5% increase in 2022.

Two economic indicators are lagging this strong performance. Payroll employment currently is 4.4% below its February 2020 peak and the level of industrial output stands 1.2% below its peak, the combination a testimony to the recent strength in worker productivity.

The NBER release from the Business Cycle Dating Committee is available here.

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