The Sherman Show hosts Jeffrey Sherman and Samuel Lau are joined by Bart van Ark and Erik Lundh, economists at The Conference Board, a leading non-profit think tank and economic forecaster. Dr. van Ark is Chief Economist and Executive Vice President at The Conference Board. Mr. Lundh is Senior Economist. Among other issues in this May 28, 2020, discussion, Dr. van Ark and Mr. Lundh talk about how the unique circumstance of the present economic downturn – due to the exogenous shock of COVID-19 rather than a classic weakening of the business cycle – necessitates a different approach to modeling how to investigate possible futures for the U.S. economy. They foresee three main possibilities: a gradual U-shaped recovery, which they consider the most likely; a rapid recovery; and a W-shaped event in which a too-rapid recovery triggers a second wave of COVID-19 cases, prompting more social-distancing policies.
Other eventualities include the possibility the present supply-side shock becomes a more classical demand-side recession. That’s an open question still being debated at The Conference Board. “But certainly,” Mr. Lundh says, “the longer businesses stay shut, the longer the economy stays shut, the more income impact there is, the higher the probability that this is going to have second-order impacts and this turns into a longer-term, more-difficult-to-recover-from recession.”
Some observers have taken heart from the latest initial jobs claims report and the fact that The Conference Board’s Consumer Confidence Index halted its free fall in May. However, Dr. van Ark strikes a skeptical note regarding those data points as well as the improvement registered in the Consumer Expectations Index for the future. “There are three expectations components,” Dr. van Ark notes, “business conditions, employment and income. All the improvement in expectations in May was due to business conditions…. When it comes to employment, it’s true that there were more consumers who think that there will be more jobs available than less, but it didn’t really improve a lot compared to what it was last month. But the big news is on the income side. On the income side, we actually saw more consumers being negative about income than positive. That’s been quite unique. You rarely see negativity outpacing positivity.”
Among other ideas discussed during this episode, the hosts and guests note that Federal Reserve interventions today have almost made so-called Modern Monetary Theory a reality, much of the expansion of the money supply as measured by M2 is going into savings rather than consumption, and the increasingly confrontational relationship between the U.S. and China.
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