The coronavirus will devastate the economy in ways unprecedented in modern times, slicing $1.5 trillion off the country’s gross domestic product this quarter and sending the unemployment rate soaring to 14%, the Congressional Budget Office said Friday.
And while the economy will pick up later this year, the jobs picture will grow worse, hitting 16% unemployment in the third quarter before rebounding, somewhat. According to the CBO’s projection, unemployment will still be above 10% at the end of 2021 — 20 months from now.
That would be a massive turnaround from before the virus, when the unemployment rate was 4%.
Things aren’t any better on the fiscal side of things, with CBO saying the federal deficit, which had been projected at $1 trillion this year and again next year, will now be $3.7 trillion this year and $2.1 trillion next year. And that’s before Congress and President Trump try to pass another recovery bill.
The previous record deficit was $1.4 trillion during the Great Recession that followed the 2008 Wall Street collapse.
The massive spending and tax-cut binge will pile on the debt, sending it soaring to 101% of GDP for the first time since World War II. It will reach 108% next year, CBO said. That’s nearly two decades faster than the agency predicted, pre-coronavirus.
CBO has been warning of unsustainable debt for years, but the virus will complicate efforts to rein it in.
“It’s one thing to run a deficit during a pandemic, but Washington’s long-term debt habit is suicidal,” said Sen. Ben Sasse, Nebraska Republican, as he surveyed the new data. “Republicans and Democrats maxed out the credit cards during good times and now, when we’re in the middle of the coronavirus’ health and economic crises, we’re facing a bleak future.”
He said the virus should be a wake-up call.
“If politicians continue to ignore the problem, this debt will crush our kids,” he said.
The economy may already be in a recession. It takes two consecutive quarters of falling GDP to qualify as a recession, and CBO said the economy contracted by nearly 1% in the first quarter.
Combined with the nearly 12% drop this quarter, that would qualify.
But the rebound should also be strong.
CBO projects a 5.4% growth rate in the third quarter and 2.5% rate in the fourth quarter, even with the job market still in pain.
For 2021, CBO projects annual GDP growth of 2.8%.
The jobs numbers will be particularly painful for President Trump, who had made low unemployment a selling point of his term in office.
CBO says that participation in the economy, defined as those 16 years of age and older who are working or seeking jobs, will drop from 63.2% at the start of this year to 59.8% in the third quarter.
The last time it was below 60% was in 1971, just as women were entering the workforce en masse.
Even with improvement over the next 20 months, there will still be 6 million fewer people in the labor force than CBO projected in January.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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