Donald Trump's V-Shaped Economic Recovery Is In Trouble

- NATIONAL INTEREST - Oct 29, 2020 -

Desmond Lachman -

Two factors seem to be fueling the market’s growing doubts about a sustainable V-shaped recovery. The first is the market’s growing concern about a vicious second wave in the pandemic not only in the United States but also in Europe. The second is that political developments in the aftermath of the election could delay the passage of the second stimulus package till February or until a new Congress is in place.

Judging by the renewed spike in COVID-19 infections and by the stock market's recent swoon, it would seem that the gods have decided to rain on Donald Trump’s economic parade just when he least needs that to happen. 

Less than a week before the election, when Mr. Trump would like to seize on today’s strong U.S. GDP numbers to trumpet the success of his economic policies, the gods are causing stock prices, Mr. Trump’s favorite economic indicator, to tumble. They are doing so by heightening fear in the markets that the U.S. is all too likely on the cusp of a second and more vicious wave in the pandemic. They are also doing so by sowing doubt that agreement between Congress and the White House on a second stimulus package will occur anytime soon.

Today’s GDP numbers showed a 33 percent surge in GDP in the third quarter of the year, or by far the largest such increase on record. Judging by Mr. Trump’s pre-announcement on the stump of the strongest of economic rebounds, in the closing stage of the campaign he can be counted on to present these third-quarter numbers as a vindication of what he is claiming to be his superb handling of the economy.

He will do so without mentioning that in the previous quarter GDP declined by 31 percent or by an amount that had no parallel even in the Great Depression. That explains why despite the strong third-quarter bounce, US output today is still well below its pre-pandemic peak and why around 11 million Americans still remain unemployed.


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