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UM Releases Updated Economic Outlook

Substantial economic disruption has occurred since the University of Michigan’s RSQE released economic outlooks for the U.S. and Michigan economies in February 2020. Today, they released an updated set of interim forecasts has been released, which includes two scenarios – a short-lived contraction in economic activity or an “effective mitigation scenario” and a “prolonged fallout scenario”.  The analysis is based on the Congressional Budget Office’s (CBO’s) 2005 study “A Potential Influenza Pandemic: Possible Macroeconomic Effects and Policy Issues.”

View the full analysis or read a summary below:

RSQE expects an official recession to be declared in both scenarios considered. It remains possible for events to unfold in a more positive direction than the two scenarios.

GDP

On an annual basis, the United States real GDP growth in 2020 registers approximately  0.5  percent in the effective mitigation scenario and negative  1.8  percent in the prolonged fallout scenario, or roughly four percentage points lower than in the February outlook.  The level of real  GDP  in the effective mitigation scenario catches up to the previous forecast level by mid-2021, but in the prolonged fallout scenario, it runs substantially below the previous forecast level throughout the forecast horizon.

Employment

In the effective mitigation scenario, Michigan’s payroll employment count declines by approximately 155,000 jobs from the first to third quarters of 2020. In the prolonged fallout scenario, the decline is 400,000 jobs. Although in the former scenario, the state’s job count returns to its forecast path from the previous forecast by early 2022, it remains well below the previous expectations in the latter scenario.

Unemployment Rate

In the effective mitigation scenario, Michigan’s unemployment rate rises from 4.1 percent in 2019 to 5.8 percent in 2020, before declining back to  4.5  percent in  2021.  In the prolonged fallout scenario,  the state’s unemployment rate jumps to 8.1 percent in 2020 and 8.8 percent in 2021 before beginning to decline; it reaches a peak quarterly rate of 10.0 percent in the third quarter of 2020.

Key Points

  • There is limited economic information available, and the situation is evolving quickly.
  • Protecting people’s lives at the expense of short-term economic pain is justified on public health grounds and by long-term economic logic.
  • It is imperative for the federal and state governments to mitigate the pandemic’s economic damage to vulnerable people’s livelihoods.

View the full analysis.