According to our survey of economists, the economy won't be back to normal until 2022 or later

According to our survey of economists, the economy won't be back to normal until 2022 or later

It's been about four months since the National Bureau of Economic Research announced that the US was officially in recession, and what an odd recession – and recovery – it was. The stock market has been chugging happily since February when the recession began; Disposable income rose despite millions of Americans being unemployed. and unemployment is recovering much faster than economists expected.

However, there is still great uncertainty about what will happen as winter approaches and COVID-19 cases rise again. And many economists are still not very optimistic about the speed of our way back to a pre-pandemic economy – even if some signals could improve.

In May, FiveThirtyEight, in partnership with the Global Markets Initiative at the University of Chicago's Booth School of Business, launched a bi-weekly survey of 30 quantitative macroeconomists. We asked economists to predict the development of various economic indicators. And after 10 rounds of questions, it's clear that economists have become much more optimistic about the pace of recovery on some metrics – particularly unemployment. However, that optimism has not generated greater confidence that we will soon return to economic normalcy. In the last round of the survey, conducted October 9-12, the economists jointly assumed that the probability that the economy will not return to normal until 2022 or later is 66 percent.

"We generally view the recession as a kind of swoosh shape, and we're now in the slow part of the boom," said Jonathan Wright, an economics professor at Johns Hopkins University who consulted with FiveThirtyEight on the design of the survey . “It has always been easier to say that the recovery will be slow than to know what is going on in the short term. So it makes sense that economists became much more optimistic in the short term, but largely believed that repairing the damage would take a long time. "

We looked at a handful of questions we asked on almost every round of the survey to see how things changed between late spring and now. On one question – about the unemployment rate in December 2020 – economists became significantly more optimistic. The average point estimate for unemployment in December fell from 12.8 percent at the end of May to 7.4 percent in the current round.

A great source of optimism, of course, is that workers have returned to work much faster in recent months than economists initially expected. The unemployment rate was 7.9 percent in September after 14.7 percent in April. In some ways, the current 7.4 percent forecast for December is actually pretty pessimistic – as it implies that economists believe that the unemployment rate will fall by less than a percentage point on average over the next three months.

For fourth quarter gross domestic product, economists' forecasts were basically back where they had started. At the beginning of June, the economists in the survey forecast GDP growth of 4.2 percent with a relatively large confidence interval. In the previous round, that forecast had improved only marginally to 4.9 percent, and the confidence interval was just as wide – a sign that they hadn't become more certain about the outcome in the past few months.

Of course, it should be noted that their third-quarter GDP forecasts turned significantly sunnier over the course of the summer, which may be a reason why they didn't expect further quarter-on-quarter growth between the last two quarters of the year. Note, however, how uncertain economists are about our economic situation at the end of the year. Allan Timmermann, a professor of economics at the University of California at San Diego, who also consulted with FiveThirtyEight on the survey, said it was "really extraordinary" that the average uncertainty among economists about their point estimate since June has been substantial remained unchanged. "Normally, the uncertainty would have decreased significantly over such a long horizon," he said.

Timmermann attributed the uncertainty to the fact that so much unknown remains about how the pandemic will develop. "The uncertainty about how the virus is progressing and its impact on service sectors such as hospitality, travel, entertainment and dining remains at the fore and is not really clear at this point," he said. "Many companies are hoping to survive the virus, but even at this point it is very unclear how long the pandemic will last."

And maybe that's why economists' long-term estimates are almost as boring as they were at the beginning of the survey. Each round we asked them when GDP would return to pre-pandemic levels. Economists thought early on that the probability that we would be back at this point in the first half of 2022 at the earliest is 67 percent. In the last round, this outlook remained largely unchanged.

Economists still believe the recovery will be slow

Expert estimates of when real GDP reached pre-crisis levels (Q4 2019)

round 2 Round 10 difference
Before the first half of 2021 2% 1% -1
First half of 2021 11 8th -3
Second half of 2021 21st 25th +4
First half of 2022 22nd 26th +4
Second half of 2022 20th 20th 0
First half of 2023 12 11 -1
Second half of 2023 7th 5 -2
After the second half of 2023 6th 4th -2

The answers come from an expert survey that was conducted from May to October. The question of when GDP will return to pre-pandemic levels was worded differently in the first round of the survey and is therefore not included in the table.


Wright, meanwhile, thought it possible that more bad news might await us – also because Congress still hasn't acted to pass a second wave of fiscal stimulus that economists have consistently seen as necessary to accelerate the economic recovery. "The combination of delayed fiscal stimulus and bad news about the virus could actually result in a double slump later this year," he said.

Neil Paine contributed to the research.