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By Karen Nikos-Rose on June 23, 2020

By Suzy Taherian, UC Davis lecturer, Graduate School of Management

This story is excerpted from an article published in Forbes on June 18. Reposted with permission.

Federal Reserve Chairman Jerome Powell spoke recently predicting a “long road” to economic recovery. Powell’s speech came shortly after U.S. Bureau of Labor Statistics released unemployment data for May indicating civilian unemployment dropped from a peak of 14.7 percent at end of April to 13.3 percent at end of May. Powell acknowledged the improvement in the unemployment rate but foreshadowed that the GDP would shrink by 6.5 percent in 2020. Along with Powell’s speech, the Federal Reserve published an economic forecast for 2020 to 2022. While the outlook for 2020 was grim, the forecast for 2021 suggests this will be one of the fastest recoveries in memory.

Taherian
Suzy Taherian

Unemployment spiked at end of April, jumping from 3.5 percent in February to 14.7 percent at end of April. There was some good news in May as the unemployment rate dropped to 13.3 percent. However, this is still a historically high unemployment rate. The May 2020 unemployment is 33 percent above the peak after the 2008 recession and more than double the highest unemployment after the 2001 recession.

The Federal Reserve released a long-term economic and unemployment outlook, providing more details for Powell’s speech. It shows the U.S. economy shrinking by 4.2 percent to 10 percent in 2020. Unemployment is projected to stay stubbornly high with estimates of 5.5 percent or higher through 2022. The forecast from Federal Reserve has a positive message as well; it predicts a healthy GDP growth of 5 percent in 2021. This implies the economic recovery would take about 20 months.

According to the National Bureau of Economic Research, since 1854 in U.S., an economic cycle has averaged 38.7 months from trough to peak. For comparison, recoveries for the 2001 and 2008 recessions took over 120 months and 73 months, respectively.

If the economy starts growing again in 2021 as the Federal Reserve predicts, this will be one of the fastest recoveries in recent memory.

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