Anis Chowdhury with Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR: US third quarter GDP numbers released two weeks ago delighted stock markets and President Trump. Output had picked up by 7.4%, annualised as 33.1%, the largest quarterly economic growth on record, almost double the old record of 3.9% (annualised as 16.7%) in the first quarter of 1950, seven decades ago.
This news could not have come at a better time for Trump, who is struggling for re-election, as his Council of Economic Advisers (CEA) declared that this affirmed Trump’s claim, “we’re coming back, and we’re coming back strong”. The CEA spun the White House press release headline accordingly, “The Great American Recovery: Third Quarter GDP Blows Past Expectations”.
The CEA attributed the record to “the strong foundation of the pre-pandemic economy and the efficacy of the Trump Administration”, portraying it as “a testament to the fortitude and resilience of America’s workers and families”.
Meanwhile, new US COVID-19 cases on the very same day reached a record high, surpassing 90,000 and still rising, with total cases nearing a million, with deaths four times the total American death toll during the two decade long Vietnam War, and fast approaching a quarter million.
Glass half full/empty
As COVID-19 rages unchecked, economic activity remained US$670 billion below its pre-pandemic peak. According to the ‘Back-to-Normal Index’ of Moody’s Analytics and CNN Business, the economy was only 82% of what it was in early March, with 10.7 million jobs lost since February!
Figures released by the Bureau of Labor Statistics in early October show that more than 12.6 million Americans were out of work while lasting job losses rose, with 36% of the jobless deemed permanently unemployed.
Those permanently laid-off ballooned from 1.5 million in March to 3.8 million in September, and the number of long-term unemployed (those jobless for 27 weeks or more) increased by 781,000 to 2.4 million. This number is still rising fast, threatening extreme hardship for many more households.
Prospects for those losing jobs may be bleak as US job recovery appears to be running out of steam. After adding 4.8 million jobs in June, job gains slowed to 1.8 million in July, 1.5 million in August and only 661,000 in September. As time passes and job growth continues to slow, it will take years to bring employment back to pre-pandemic levels.
Annualising a quarterly or monthly rate tells us how much the economy would expand or shrink if the rate of change is maintained for a full year. But this can be misleading, by making mountains out of molehills. Undoubtedly, the second quarter’s massive collapse was followed by a large gain in the third.
But the third quarter recovery of 33% after the second quarter contraction of 33% does not mean the economy is back to where it was. If 100 drops 33% to 67, and then regains 33%, it gets to 89 (from 67) -- still 11 short of the original 100.
Rapid growth in one quarter does not mean the economy has gained strong momentum. The collapse in the previous quarter had set a low baseline. Hence, any rebound from that depressed base would generate a huge growth rate.
Hours worked are often a better proxy for employment and economic recovery. Average hours worked in the first quarter were 5.1 million, dropping to 4.5 million in the second, before recovering to 4.8 million in the third, still below pre-COVID levels.
Other evidence also indicates that the economy has been slowing. For example, consumption growth was slower every month from June to August than in the month before.
Similarly, retail sales slowed over mid-2020, before a slight rebound in September. The Chicago Federal Reserve National Economic Activity Index indicated that August growth was the slowest since recovery began in May.
The prestigious Lancet has observed, “COVID-19 exacerbating inequalities”, as the pandemic sharpened various US disparities already growing for decades. As 45 million Americans lost their jobs, US billionaires made US$584 billion.
Meanwhile, US Centers for Disease Control and Prevention data show hospitalization rates for Blacks and Latinos 4.5 times that for non-Hispanic whites. A US National Academy of Sciences studyalso found age-adjusted COVID deaths more than 2.5 times higher for Blacks than for Whites.
US income and wealth inequalities have been rising since the early 1970s. The share of total income earned by the top decile (10%) rose from around 31% in the 1970s to about half in 2015, while the top 1% or percentile’s share rose from 8% to 20%.
Much of this increase among the top 10% came at the expense of workers in the bottom half of the distribution whose share of total income halved from 20% in the 1970s as median US workers’ real wages fell from 1973.
Over the past three decades, the wealth share of those in the top decile (10%) of household income rose from 61% to 70%, while that of the top 1% went up from 17% to 26%.
Jobless rates for Asians, Blacks and Hispanics were higher than the national average, even before the pandemic. Disproportionately employed in low paying occupations, they have sufferedmore job losses due to the pandemic.
Women have also suffered much more, e.g., as 617,000 women, compared to 78,000 men, dropped out of the labour force in September. Half of these women were between 35 and 44, the prime working age.
Omitting the important things in life
The pandemic can even augment GDP, which includes all COVID-related expenses, including those for treatments and funerals, plus the trillions that governments – federal, state, municipal – spend to tackle the crisis.
Perhaps, it is fitting to recall Robert Kennedy from over half a century ago:
“Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product… counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.
“It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.
“It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.
“Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.
“It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.
“And it can tell us everything about America except why we are proud that we are Americans.”