The Economy Is Recouping Better than Expected, but Lockdown Politics Could Still Sabotage the Recovery

Finally, some good news.

Newly released federal data show that the U.S. economy grew at a record clip in the third quarter, achieving 7.4 percent growth over the previous quarter. This gain, which comes out to 33.1 percent annualized, means the U.S. economy regained roughly two-thirds of the economic losses from earlier this year during the COVID-19 pandemic.

Recent data also show unemployment decreasing in many states. Comparing September with August, unemployment was down in 30 states, unchanged in 12, and higher in just eight states. Any way you look at the numbers, the glass is more than half full.

Nationally, the current unemployment rate is 7.9 percent. Is that too high?

On one hand, it’s twice as high as it was one year ago, before the COVID-19 pandemic. On the other hand, we’ve seen similar or higher unemployment as recently as 2010 to 2013. And the unemployment rate hovered around 7 percent for much of the 1970s and 1980s.

The truth is not that our current 7.9 percent unemployment rate is extraordinarily high by historic standards, but rather that our pre-COVID-19 unemployment rate was extraordinarily low. We had a red-hot economy, which was, unfortunately, dunked in a bath of ice water.

If you look across the Atlantic, the European Union’s average unemployment rate has hovered above 7.9 percent for most of the past 20 years. That’s right: The American economy amid a pandemic is doing better than Europe in a good year.

Remember this when politicians push more taxes and more government regulations, or when your friend at the cocktail party complains that the U.S. “should be more like Europe” while smoking a Cohiba Behike and sipping his Louis Tre.

Going back to U.S. unemployment numbers, New York, California, and Texas got 240,000 people back on the job in September alone. While that’s good news, those three states have lost 3 million jobs since the beginning of the year. So it will take at least 12 months of September’s job gains just to make up the jobs lost.

The moral of the story: It is easy to shut down the economy, but not so easy to get it going again.

It took five years to halve 2009’s unemployment level of 10 percent. It took seven years to go from 10 percent unemployment in 1982 to 5 percent in 1989. It took eight years to go down from 7 percent unemployment in 1961 to 3.5 percent in 1969.

The picture of unemployment dynamics over the past 70 years is pretty consistent: It’s shaped like the letter N, which means fast spikes in unemployment, followed by slower, gradual reductions.

Of course, this crisis is different from previous ones, in the sense that it was caused by the government shutting down the economy practically overnight. This contrasts with crises caused by a confluence of slower forces, such as the financial crisis of 2007-08 or the oil price shocks of the 1970s. So there’s reason to think (or at least to hope) that once COVID-19 restrictions are removed, the bounce-back will be faster.

The key to reviving the economy is to let people work again. Real economic growth occurs when people make things, not when they sit on the sofa and spend stimulus money.

The government can prop up GDP numbers with borrowed money, but it is ultimately just a gimmick. It’s no different from how you can appear rich by buying a Mercedes with borrowed money. You might fool your neighbors, but reality hasn’t changed.

GDP numbers aside, job losses hit some sectors particularly hard. More than a third of all job losses came in the leisure and hospitality industry. On average, one in five people in the hospitality business became jobless, compared with one in 100 in construction or one in 15 in manufacturing.

The plight of the hospitality business is sad, but unsurprising. It is directly impacted by travel restrictions, and restrictions on doing business, such as restaurant closures. The hospitality industry was also hurt by the fact that most people tightened their purse strings and started spending less on travel and eating out (credit card debt is actually going down during the pandemic).

The silver lining here is once restrictions are lifted, and people relax and start spending more, business should pick up and unemployment should go down.

Of course, the recovery and getting people back to work can be jeopardized. Keep schools closed, and some parents will be forced to stay with kids rather than go to work. Pay people more for staying at home than they would make at their job, and many people will do just that.

Politics might still mess up the recovery.

Which leads to a couple of conclusions. First, current levels of unemployment are uncomfortable but manageable. Second, the road to recovery will be slower than that of injury.

In other words, the economy is out of the emergency ward and walking again — but don‘t expect it to be doing backflips tomorrow.