March 27, 2021 — It has been a year since the US and the world went into recession. Because of its origins in the sudden pandemic, it was possible to reliably discern the advent of the recession before it was reflected in any of the standard economic statistics, which is rare. (I hope it shocks no one to learn that economists can’t normally predict recessions.)
By the end of the second quarter of 2020, US GDP had fallen 11 %. This record plunge took the US economy from a level that is estimated to have been 1.0% above potential output at the end of 2019, to a level 10 % below potential in mid-2020. Potential output is the level of GDP that is produced when unemployment is at its so-called natural rate, the capital stock is operating at the capacity for which it was designed, buildings have their normal occupancy rates, etc.