COVID-19: The Square Root Recovery? https://oregoneconomicanalysis.com/2020/04/07/covid-19-the-square-root-recovery/
COVID-19: The Square Root Recovery?
Our office is working on developing the latest state economic and revenue outlook. While much uncertainty remains, the broad contours of the recession and recovery may be coming into focus. While o…https://oregoneconomicanalysis.com/2020/04/07/covid-19-the-square-root-recovery/
While much uncertainty remains, the broad contours of the outlook may be coming into focus. In doing so the shape of the recovery may not resemble the classic U or V shapes, but rather something more like a square root. The thinking is as follows.
Overnight economic activity plunges to begin to get the health situation under control. Once the curve flattens and caseloads peak, some of the health restrictions will begin to be lifted. Some initial bounce back in economic activity will likely follow, although far from 100%
Will some consumer service firms staff up 1/3 of their losses to meet increased demand? 1/2? We don't yet know the exact answer. But from there, economy may see slower growth until health situation fully under control - be it a vaccine or some other treatment/development
Once the health situation is under control, then the recovery can gather steam although exact strength will be determined by consumer's pent-up demand, how much permanent damage is done to economy (failed firms, displaced labor), and public policies
There are broad ranges of outcomes even within these contours. Our office is working with our advisors to nail down more specifics in the weeks ahead as we develop the next forecast.
The point here isn't trying to be too clever by half, but rather having a clear visual and easy to understand concept may be helpful to think through the outlook and share our latest thinking during this time.