Oregon Office of Economic Analysis

To date the economy is a paradox in the sense that it is clearly in bad shape but also performing better than expected. One big reason for this better-than-expected economy is federal assistance. In particular the CARES Act provided support for small businesses, households, and laid off workers. This federal aid put a floor under the recession and kept firms and households afloat in recent months. In fact, while underlying personal income has dropped roughly as much as it did during the Great Recession, the federal assistance so far has more than made up for that loss. Total personal income is actually up in recent months which means households are able to pay bills, and spend money if they want to, or feel comfortable enough to do so. New data finds that total household debt in the U.S. went down last quarter, primarily due to credit cards being paid off (probably due to more income and less spending). Encouragingly student loan delinquencies plummeted as well, and there was a large increase in households who were behind on their mortgages being able to catch up and become current. Furthermore we know that bankruptcy filings are also down in recent months.

However the key question has always been what happens once that federal assistance runs out? The Paycheck Protection Program (PPP) loans/grants were originally designed to last 8 weeks, the one-time recovery rebates were mostly issued in April, and the expanded unemployment insurance benefits expired at the end of July. The CARES Act did it’s job, but unfortunately the pandemic is still raging. The economy needs more help to tide firms and households over until the public health crisis is managed and brought under control.

Our office is beginning to work on our next forecast, due out September 23rd. We are developing the preliminary forecast and meeting with our advisors here in a couple of weeks. The good news is that the economy is clearly doing better than we expected in recent months. In fact the economy is more in-line with our optimistic scenario from our most recent forecast. However the state of public health and uncertain federal policy is more in-line with our office’s pessimistic, double-dip scenario. Plus there are numerous indications that the economy has stalled out over the summer, everything from leveling off in restaurant demand, to ongoing large numbers of initial claims for unemployment insurance, to slower job growth in July. So far the data is shaping up like the Square Root Recovery, albeit on a faster timeline. How all of this affects the forecast is still a work in progress. The starting point of the recovery is better, but the outlook, if anything, is more uncertain.