Question

briefly discuss the key features of the current U.S economy and your overall assessment. Your answer should mention data for real GDP, growth, inflation, unemployment, etc

Answer 1

COVID -19 unlike the 2008 recession is a crisis based on human behaviour and choices which has affected the supply side hence lockdown, closure of trade and social distancing has affected the US economy drastically. GDP provides a clear indication of the production sector and based on the reports the US GDP in the first quarter of 2020 went into a negative of 5% while in the second quarter fell to 31%. Not only the GDP but the unemployment rates have also been devastating with 33 million fillings for unemployment benefits in the first few months where this has increased to 55 million. According to the BLS, the current unemployment rate is 7.9%. With an increase in unemployment and pay cuts in major sectors the demand and purchasing power has fallen drastically affecting the production sector directly. The majority of the unemployed are below 30 years of age and increased unemployment has been seen predominantly in retail and food industries highlighting that the hit of this pandemic induced recession on the younger generations. Women too have been critically hit along with Hispanics and Blacks.

The US oil market was flourishing but the pandemic induced shock led to a collapse of the oil prices pushing down the price to $24 a barrel. The major reduction in demand for oil is due to a fall in airline turbines and vehicle fuel due to the policies induced by the government. The pandemic has altered or caused many shifts in our lifestyle for instance the food we eat or how it is currently produced. Restaurants are shut in many places and supermarkets are out of stock as the supply chain has been hampered. The shutting down of major meat processing units in the US has led to a shortage and scarcity of meat. Due to this shortage, some of the supermarkets in the US had limited the purchase of meat items to just three per person. Also, the closure of these meat units has led to an increase in the price of meat and dairy products as scarcity leads to a fall in supply and a rise in prices. The closure of trade, firms, restaurants led to a stop in fish farming and also seafood operations. 2/3rd of US salmon is exported out of which 1/3rd is to China and due to the closure of trade the export revenue of seafood has declined. Seafood was consumed mainly in restaurants but the lockdown and social distancing policy has hampered the sales of hotels and restaurants. The seafood industry faces not only the demand crunch but also supply uncertainty. According to Seafood company in Dulac, their sales had plummeted to about 90% since March 2020. The collapse has been seen not only on the seafood harvester or lobster harvester but also on the dealers, processors, and truckers who play a pivotal role.

With an increase in layoffs, unemployment, and pay cuts the demand and purchasing power has reached its low with people struggling to meet ends. Therefore, the government introduced the CARES Act through which $600 is being provided to the unemployed over and above the state unemployment benefits and this will definitely help the unemployed to meet their daily needs but will it reduce the unemployment rate is the big question. Economists and Republican Senators have criticized this policy as a disincentive policy as it would encourage people to stay unemployed as through these payments, they are earning more than their regular income. The increase of cash in hand increases purchasing power has been the policy used for the past recession but it's important to note that the current is due to supply-side factors and not demand. Consumers are assumed not to be spending due to financial constrain but it is also due to the fact that they are unable to do so due to lockdown and quarantine policies hence hampering the consumption component of the GDP. Therefore, the package will stimulate the aggregate demand and may decrease unemployment but the magnitude of the impact is temporary and positive. The economies due to past experience know how to deal with a fall in demand but the current situation is a fall in supply. Hence the long-term impact will depend on the policies implemented and regulations during the opening up of economies.