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Morgue Testing the US Economy

Owing to the lack of testing capacity, there is no way to know for sure just how bad the COVID-19 epidemic in the United States has become as a result of this summer's "Sunbelt second wave." But judging by the latest data on morbidity and unemployment-insurance claims, no one should bet on economic recovery in the third quarter.

BERKELEY – US national income and output in the first quarter of 2020 was 1.25% below what it had been in the fourth quarter of 2019, but still 9.5% above what it would be by the second quarter of this year. Now that US national income has plunged 12% below what it was at the start of the year, what should we expect for the third quarter?

America could always turn out to be lucky; but betting on that would not be prudent. According to Austan Goolsbee and Chad Syverson of the University of Chicago Booth School of Business, it was voluntary self-protection, rather than legislated restrictions on activity, that drove most of the decline in consumer spending this spring. Moreover, they warn that, “If repealing lockdowns leads to a fast enough increase in COVID infections and deaths and a concomitant withdrawal of consumers from the marketplace,” doing so “might ultimately end up harming business activity.”

In fact, we have seen this summer that ending or scaling back lockdowns often does lead to a rapid increase in COVID-19 infections. A sound forecast for the US economy, then, must start by forecasting the future of the pandemic. Yet most of the charts, graphs, and tables concerning the virus and its impact are useless for forecasting purposes.