Predictions of Strong Economic Rebound Are Too Optimistic


1. Overview – The Worst of This Crisis is Not Over Yet

2. The Illusion of a Rapid US Economic Recovery Just Ahead

3. 85% of Independent Restaurants May Be Gone This Year

Overview – The Worst of This Crisis is Not Over Yet

The far better than expected jobs report for May released earlier this month – showing a whopping 2.5 million new jobs created last month and an unemployment rate which dipped to 13.3% – set off a wave of optimism regarding US economic growth prospects in the second half of this year.

However, as I explained on June 9 in these pages, the May jobs report looked as good as it did because the Labor Department decided not to count millions of workers who were furloughed or had their hours cut to zero as unemployed – on the thinking they would be going back to work soon. Unfortunately for many, that is not likely to happen.

Yet despite that major “miscalculation” the Labor Department admitted, most economists are now issuing very favorable forecasts for growth in the second half of this year. It’s clear most forecasters have bought into the idea that we’re going to see a strong “V” shaped recovery in the 3Q and 4Q. I simply do not believe that is what will happen.

I still believe we are going to see millions of small and medium-sized businesses go bankrupt in the second half of this year. For example, a new report from the Independent Restaurant Coalition predicts that as many as 85% of independent restaurants may be gone by the end of this year. That’s stunning! But the fact is, most restaurants simply can’t survive operating at only 25%-50% of capacity.

Even if retail businesses were able to reopen at full capacity, that is no guarantee consumers will return in numbers anywhere close to what they were before the coronavirus outbreak. It could easily be the second half of 2021 before we see that happen, if at all.

Today, we’ll take a look at some of the rosy forecasts for second half US economic growth and why I think they could prove to be far too optimistic. Let’s get into the numbers.