US Economy: A Sinking Ship?
So the bad news is finally out.
The US economy shrank at a 32.9% annual rate between April and June 2020.
In these momentous days during the pandemic, as the United States grapples with lockdowns and spending cutbacks, this was the deepest decline since records began in 1947. The previous record set in 1958 was a mere 10% in comparison.
Latest figures since the outbreak of Covid-19 reveal that both exports and imports were down more than 20% from a year ago, while consumer spending – the main driver of the US economy – fell 10.7% year-on-year.
None of this should come as a surprise. Many economists expected just such a contraction. They also predict yet another one in the next quarter. Then after that many economists suggest that there will be the first shoots of a real recovery. The beginning of any recovery could take that long.
And, now, as yet more virus cases are being discovered across the US, some areas are re-imposing restrictions on all economic activity. This is having the effect of stalling any nascent recovery. While all the time the issue for most people in the States remains employment or rather unemployment. The fact that another 1.4 million Americans filed claims for unemployment last week is worrying many observers. This latest unemployment figure is up slightly from the previous week, and the real anxiety is around the fact that the trend is heading in the wrong direction for the second week running. Since February that’s 15 million US jobs that have gone, possibly for good. And these latest jobless statistics come despite the strong hiring we saw back in May and June. Back then those figures gave us all grounds for some early optimism. It may have proved false hope though as, depressingly, the US census estimates now that since the pandemic more than half of American households have seen incomes cut – in some cases drastically. And, more depressing still, this appears just to be the beginning of this downward spiral.
Add in the other data that seems to show spending cuts and an overall loss in public confidence in regards to the US economy, and any talk of recovery – “V-shaped” or otherwise, looks a little far-fetched. Only this week Jerome Powell, the head of America’s central bank, warned of a downturn that would be the “most severe in our lifetimes.” As a consequence he has urged further Federal and State financial bailouts to help Americans and their businesses to come through what is by any measure an unprecedented crisis. Stateside this is something other business leaders have been saying for weeks now that the true scale of the crisis and the necessary corrective steps to attempt to avoid its effects are clear for all to see.
As if to aid these calls, the BBC quoted Neil Bradley, chief policy officer at the US Chamber of Commerce, a business lobby group, as follows: “The staggering news of the historic decline of the gross domestic product in the second quarter should shock us all. This jarring news should compel Congress to move swiftly.”
There does not appear to be many homegrown American ideas out there to challenge the sense of foreboding that permeates this current debate. I mean if the only answer is yet more Federal billions flooding the US economy then that economy and the people regulating it, and even those working in it, are in more trouble than we thought, and not just because of Covid-19.
You see America’s economy was not created by nor designed for huge state stimulus or large government handouts, no matter how generous. Instead, the US economy is built on and thrives on entrepreneurialism. It is that spirit that made America the greatest economy the world has ever seen. It is the same spirit that will help America and Americans up onto their collective feet after this latest pandemic and the resultant economic carnage from it.
And these days the reality is that things are not good anywhere. That fact has to be born in mind. The International Monetary Fund has predicted that global growth will fall by 4.9% this year. Even the German economy has suffered its sharpest decline on record, just last week noting a record quarterly decline of 10.1%. Mexico’s economy also reported a double-digit contraction. Like the virus that provoked it, believe me this contraction is everywhere.
Perhaps the corrective Stateside will be from incoming European entrepreneurs? It is those men and women, ably helped by the good folks at Mount Bonnell Advisors, who shall help Americans to re-find the founding spirit of a land that gave birth to the free market economy on a scale never before witnessed in history. We all need America back and booming.
Maybe it is no coincidence that Mount Bonnell Advisors is based in London. From there we help today’s European entrepreneurs to make it Stateside. It was from this city four hundred years ago this summer that the Mayflower set sail. On board that ship were an intrepid bunch of visionaries. They dreamed of a new land – and allied dreams of freedom. But they also sought a new prosperity for themselves and their families. And what happened next we know. Well, it looks like we need another “ship”. A new vessel to set sail once more with a whole shipload of different adventurers inspired too by thoughts of prosperity and freedom.
That is why I founded Mount Bonnell Advisors. And that is why we will be here long after Covid-19 has been consigned to the history books.
