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Op-ed views and opinions expressed are solely those of the author.
Contrary to virtually every economist’s (except me) forecast, the economy added 4.8 million jobs in the month of June. That is by far, the largest monthly jobs increase ever recorded. The previous record was 2.5 million set in May. This data confirms, the V shaped recovery is proceeding rapidly.
Some argue that the jobs number is so large, because of the huge number of job losses in March and April. That is true, except that the high jobs numbers in both May and June, indicate that a rapid, V shaped recovery has started. The pace of the recovery is staggering.
The Federal Reserve forecasts that the unemployment rate won’t fall below 10% until the end of the year. That forecast is also inaccurate. The unemployment rate will fall below 10% by August or September. It is possible the rate drops below 10% in July. The July unemployment number will be released on August 7.
The unemployment rate was 14.7% in April. It dropped to 13.3% in May and then down to 11.1% in June. This indicates that the recession lasted only a couple of months, likely starting in late February and ending by April 30. The recovery started on May 1st.
Retail sales increased nearly 18% in May, a record one month gain. Total consumer spending increased 8.2% in May, also a monthly record. While the pace of re-openings, mostly in the hospitality industry, may slow in late June and July, due to the increased number of Coronavirus cases, the increase in manufacturing and the retail sectors will likely lead to continued high growth.
Professional sports will resume activities in July. While the attendance will be held to a minimum, the sports will be televised. That will generate tens of millions of dollars in advertising revenue. By late summer or earlier, we will be able to watch professional baseball, basketball, hockey, soccer, football, golf and race cars.
The precarious, but seemingly robust recovery was aided by the federal government’s stimulus package. The package gave $1,200 to virtually every adult who filed a tax return in 2018 or 2019. For a family of four, the check was for $3,400. Taxpayers received this “free money” whether they were negatively impacted by the shutdown or not.
Additionally, almost every unemployed worker received a large portion of their regular paycheck through their state’s unemployment compensation program. The federal government added an additional $600 per week to their state benefit. That meant more than two thirds of unemployed people were receiving more income while not working then they received when they were working.
The government loaned hundreds of billions of dollars to small businesses to keep their workers employed. As long as the businesses did not lay-off workers, the loan turned into a grant, meaning it did not have to be re-paid. This kept tens of thousands of small businesses afloat while the shut-down occurred.
With all of this positive news and considering the federal government budget deficit is already about $4 trillion for this year, another stimulus package is not needed. This puts President Trump in a difficult position.
Politically, another stimulus package would be very beneficial to him in the short term. More stimulus would serve to quicken the already robust recovery. But more stimulus spending will increase the deficit even further.
The US had a public debt of more than $23 trillion before this year. Add this year’s $4 trillion deficit and the public debt increases to $27 trillion. Another $1 trillion or $2 trillion spending package would drive the deficit this year to $5 or $6 trillion.
The public debt would approach $30 trillion. That’s nearly 50% higher than one year’s GDP. This level of debt compared to GDP hasn’t been seen since 1946, when World War II had just ended. Government spending obviously fell dramatically.
The budget was balanced by the early 1950’s, thereby eliminating the deficit problem. The US hasn’t had a balanced budget since 2000 with very large annual deficits in the last 12 years.
The bottom line is that the economy is recovering much faster than the experts predicted. The stimulus package, along with the very expansive Monetary Policy, is enough to bring on a strong V shaped recovery.
Let’s not spend any more money that we simply do not have. Let the economy recover with what is already in place.