If you’re cold you won’t believe a weatherperson who says it’s warm. But if the unemployment rate is in the double digits and an economist tells you the recession is over … believe it.
Over the past two days, top economists from Goldman Sachs Group Inc. and Morgan Stanley issued reports saying the world economy was hitting bottom. If true, that means the recession is over and a recovery has begun. Yes, even though the U.S. Bureau of Labor Statistics is likely to announce on Friday that the unemployment rate in April was the highest since the Great Depression (16%, according to a Bloomberg survey of forecasters).
To the average person, a recession means economic conditions are bad. But to an economist, a recession means economic conditions are worsening. Once they stop getting worse and start getting even a little bit better, a recovery has begun. Break out the bubbly and have a social distancing party.
“A number of the high-frequency indicators we track suggest that the global economy is in the process of bottoming out,” Chetan Ahya, chief economist and head of global economics at Morgan Stanley, wrote in a report released on May 3. By Morgan Stanley’s estimation, China bottomed in February, the euro zone probably bottomed in April, and the U.S. probably bottomed in late April, with Latin America still not there.
Goldman Sachs headlined its May 4 report “Global Views: Moving Past the Bottom.” Noting China’s sharp rebound since February, Jan Hatzius, the chief economist and head of global economics, writes, “Even if the West manages only a very partial repeat of this performance, that would imply brisk sequential activity growth in the remainder of Q2”—i.e., through the end of June.
Some caveats: The unemployment rate can continue to rise in the early stages of a recovery, because joblessness is only one of the criteria used to dating the business cycle. For example, the last U.S. recession ended in June 2009, but the unemployment rate didn’t peak until that October, at 10%. And it stayed high—9.8% as late as November 2010. Another caveat is that the economists could simply be wrong. Bloomberg’s in-house economists wrote on May 4, “The latest readings are mixed with some indicators pointing to deepening contraction, others hinting at a bottoming out.”
If Covid-19 roars back, shutdowns may have to resume, and the economy won’t be able to grow. Even if that doesn’t happen, the progress back to normal is likely to be far more gradual than the downward leg.
Still, it’s hard to suppress a bit of optimism that the worst is over. It’s a far cry from early March—just two months ago!—when I wrote this: “Let’s just say it: The longest economic expansion in U.S. history may already be over, killed by Covid-19.”