April 29, 2020
I have seen several accounts where people have warned that the recovery of the economy from the shutdown period will be very slow, with China being used as a major point of reference. For example, see this piece in the New York Times. I won’t claim expertise on China’s economy, but the evidence seems to suggest the opposite.
The highlight of this piece is the weak recovery of retail sales which, if I’m reading the chart right, are still 16 percent below year-ago levels, one month after a shutdown ended. Industrial production has almost fully recovered to year-ago levels, although it had been running about 7 percent above year ago levels, so it still has a way to go before getting back to its pre-crisis trend.
The retail sales story actually is not as bleak as indicated. The one-month growth rate was around 6 percent, which would be more than 80 percent on an annual basis. I have no idea if China’s sales will continue to grow at anything like this pace, but recovering 6 percent in a month when many restrictions were still in place does not seem like a bad story.
Also, according to the piece, China did not provide any special stimulus associated with the crisis. In the US, most people are getting $1,200 checks, in addition to $600 weekly bonuses attached to unemployment insurance checks. This should leave consumers in the United States better situated to buy things after a period of shutdown ends.
To be clear, I still expect the economy to be badly hit after the shutdown period is over. As I’ve said, I think the Congressional Budget Office projections that show a 12 percent unemployment rate in the fourth quarter look plausible. But this is still a sharp bounce back from the data that we are likely to see for the current quarter.