With one month of quarantine behind the United States, people across the country are fearful about the economic future.
Dr. Scott Baier, Professor and Chair with the John E. Walker Department of Economics at Clemson University, said the first thing to understand about economic projections is how they are made
"Economic projections are typically made from using economic models that are parameterized to capture important aspects of aggregate demand coming from households, firms, and the government. Also, they capture important labor force characteristics as well as estimates of how productivity is going to grow," Baier said.
Another type of projections uses recent data from the last few months and combines those releases with survey measures of producer and consumer confidence, which are then used in a statistical framework to give an economic forecast.
Baier reports both approaches lead to very similar predictions, but the COVID-19 pandemic poses particular problems.
"In the current case what really makes this difficult and different is we're making inferences from shocks that we don't have very much experience in assessing," Baier said.
Baier said while experts are working to build economic models as quickly as possible, it is difficult to create accurate predictions since there has not been a health shock like this in 100 years.
Thus, moving past issues surrounding COVID-19 is the key to reopening.
"The sooner that we can have an effective treatment, prophylactics, and vaccines the quicker the economy can open back up and then the faster the economy can rebound," Baier said.
A V-shaped recovery is expected if things improve by early summer; if not, small businesses across the country will likely go bankrupt.
"If things turn around by late May or early June, then GDP growth and employment will probably bounce back up in the third and fourth quarter of this year. However, if the health threats surrounding COVID-19 remain elevated and persist through the summer, we are likely to see lots of small businesses go bankrupt. We are likely to see Great Depression levels of unemployment and the key issue then is without these small businesses when the economy starts to pick back up these unemployed workers may not have a place to go and it may take some time for people and entrepreneurs to feel confident enough to open new business ventures to get people back in," Baier said.
People's level of comfortability will matter in the reopening as well; feeling at-ease at restaurants, sporting events, concerts, and more may take time.
In other words, even as the public sector reopens it will take time for things to return to normal
"It's going to be some combination of both the public sector saying 'Open things back up' and providing general guidelines and the private sector figuring out the best ways to do business," Baier said.
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