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A less than grand reopening

Authors
Senior Economist
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Justin Weidner
Economist
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Brett Ryan
Senior US Economist
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It is now evident that the US economy is in the midst of the most severe contraction in the post-World War II era, one which could produce a record quarterly contraction in output in the second quarter and an unemployment rate above 17% in April. The path beyond the Q2 contraction is, however, remarkably uncertain.
In a new podcast with Matthew Luzzetti, Chief Economist, US a framework is highlighted for tracing out the timing and pace at which economic activity returns in the US over the coming quarters. The approach considers state-by-state variation along two dimensions: epidemiological projections from the Institute for Health Metrics and Evaluation (IHME) at the University of Washington and how states vary by the share of employment that occurs in close proximity to others – often called high-contact intensity occupations. States that are further behind in containing the virus spread and / or have employment skewed towards contact-intensive occupations should experience a slower return of activity, and vice versa.
Normalization will be complex and considerable uncertainty remains about how the process plays out. The return of economic activity is likely to prove gradual and a recovery of only about 40% of lost output or employment is likely to occur by year-end. A slower rebound is due partially to a slightly later start date for reopening the economy – on a state-GDP weighted basis late-May or early-June is a more reasonable assumption. More importantly, activity will likely return more gradually after the initial reopening. There are indications that there is downside risk to expectations for second half growth.
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