Daily Times

The USA, the largest economy in the world, entered a deep recession in 2020 with the crisis caused by the Covid-19 outbreak after a long period of economic growth. While the US economy is facing a deep economic downturn caused by the new type of coronavirus epidemic last year, it remains uncertain whether the effects of the epidemic will leave permanent damage to the country’s economy and how the economy will recover. In the USA, where the first Covid-19 case was detected in January last year, the economy of the country with a size of $ 21.4 trillion was upset with the epidemic that increased in March.

What has changed with the epidemic? Let’s examine in terms of wages, employment, interest rates, real income per capita, inflation, and welfare. The American central bank’s policy board decision on January 29 before the epidemic was 1.75%. After Covid-19, it decreased by 50 basis points to 1.25% as of March 3. On March 15, by lowering 100 basis points more, The Fed announced the interest rate to 0.25%. It kept it steady at 0.25 all year long. Let’s see how it affected the macro variables of the economy by keeping the Fed’s policy rate constant between 0-0.25 percent.

The US economy had grown by 2.2% in 2019. It shrank by 5% in the first quarter of 2020 due to the impact of the epidemic. The country’s economy responded to the effects of the epidemic with a contraction of 31.4% in the second quarter of 2020. The second quarter was very difficult for the American economy. Unemployment rates rose to 14.7%. And about 22 million people lost their jobs. Whereas, the pre-epidemic unemployment rate was 3.5%. Personal consumption expenditures decreased by 33.2 percent at the same period. In the third quarter, when the effects of the epidemic slowed, the economy grew by 33.4 percent. The reason for this was the loosening of strict measures, reopening of enterprises and the support provided. Thus, expenditures in the GDP side increased. The growth in the US economy during this period was partially offset by the increase in personal consumption expenditures, private stock investments, exports and fixed investments, with the decline in federal and local government spending. Imports also increased in the same period. In the revision of GDP for the third quarter, the increase in personal consumption expenditures and fixed investments was determinant. During the said period, personal consumption expenditures increased by 41%.

While the Fed predicts that it will shrink by 2.4 percent, the US economy contracted 3.5 percent in 2020. Is an economic contraction a failure for a country’s economy? Actually yes. Because the main purpose of an economy is growth, price stability and full employment. Growth decreased. Price stability, the general increase in average prices, i.e. inflation, declined. Foreign trade deficit, on the other hand, increased by 13.8 percent.  The budget deficit increased to 3.1 trillion, while it was only $ 984 billion in the same period of 2019. In short, a budget deficit means that public expenditures are more than taxes. All the countries of the world had a budget deficit. Because public expenditures were increased with incentives within the scope of public support and of course it was not equal to the taxes collected. And just yesterday, the $ 1.9 trillion economic support package was accepted by the US Senate. This is both an important step to stimulate the economy and a note that will be recorded in the US report card as a budget deficit at the end of the year.

Let’s examine the most important point for public expenditures, minimum wages. It’s included in the graphic that more than 20 states will up their minimum wage for workers in 2021. While there was no increase in the minimum wage in the states of Idaho, Utah, Kansas, Texas, North and South Carolina, Georgia, there was a gradual increase to $ 15 / hour in the states of New Jersey, Massachusetts, California. In other respects, In the states of Washington, Arizona, Montana, Alaska, New Mexico, Minnesota, Ohio, and Virginia, the minimum wage increased by less than $ 15 per hour. Nearly half of U.S. states will raise their minimum wage in 2021 and more pay hikes could be on the way.

On the other hand, according to the Bureau of Labour Statistics reported last week, almost 40% of jobless workers in January were long-term unemployed. The share has grown steadily since the spring and is approaching the record set in April 2010, in the aftermath of the Great Recession. At that time, nearly 46% of the unemployed were out of work for at least six months. And 49,000 jobs last month. The economy shed 227,000 jobs in December, the first drop since the rebound began in the spring. Meanwhile, there are about 10 million fewer jobs than before pandemic.

Besides all these, if we look at the real income per capita, which is an important indicator of sustainable welfare, it remained at an average of 47,284 for the US. It is predicted by the World Bank that the epidemic will decrease per capita income by 18%.

We talked about roadworks in the world’s most powerful unpredictable epidemic. According to the IMF data, the UK economy contracted by 10 percent last year, while Canada, Japan and Germany shrank by more than 5 percent. Actually, the world economy has always witnessed such surprises. Even if measures are taken, a crisis in one place can affect the other side of the world very quickly due to globalization. This is inevitable. The fact that it is a strong economy only delays fragility, but we cannot say it is impossible to affect it. As examples of this, according to the IMF data, the UK economy contracted by 10% last year, while Canada, Japan and Germany shrank by more than 5% during the pandemic.