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Why the Best G.D.P. Report Ever Won’t Mean the Economy Has Healed – The New York Times

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The United States almost certainly just experienced its fastest three months of economic growth on record. That doesn’t mean the economy is strong.

The Commerce Department on Thursday will release its preliminary estimate of economic growth for the third quarter. Economists surveyed by FactSet expect it to show that gross domestic product — the broadest measure of goods and services produced in the United States — grew about 7 percent from the second quarter, or 30 percent on an annualized basis (more about that in a bit).

If those forecasts are even close to correct, it would represent the fastest growth since reliable records began after World War II. Until now, the best quarter was a 3.9 percent gain (16.7 percent annualized) in 1950.

This G.D.P. report will be particularly closely watched, arriving as the last major piece of economic data before Election Day next Tuesday.

But it doesn’t make sense to think about Thursday’s report in isolation. The third quarter’s record-setting growth is effectively an echo of the second quarter’s equally unprecedented contraction, when business shutdowns and stay-at-home orders led gross domestic product to fall by 9 percent. Strong growth was inevitable as the economy began to reopen.

While the economy has revived considerably since last spring, it is far short of its level before the pandemic. And progress is slowing.

“Employment has come back to some extent, but the unemployment rate is still high, wage and salary income is still low,” said Ben Herzon, executive director of IHS Markit, a forecasting firm. “Demand is still being depressed by the pandemic.”

In superlative-laden Facebook ads purchased days before the report, President Trump and his supporters have already begun to promote it as evidence of a strong rebound. The truth is more complicated. Here is how economists are thinking about the report, and why the numbers could be misleading.

If G.D.P. fell by 9 percent in the second quarter, and rose by about 7 percent in the third quarter, it might sound as if the economy is almost back to where it started.

It isn’t. The big drop in output in the second quarter means that third-quarter growth is being measured against a smaller base. A simple illustration of the same phenomenon: If you have $100 and lose half, you have $50. If you then manage to increase your money by half, that will bring your holdings to $75, not all the way back to $100.

To really evaluate the recovery, it makes sense to focus less on quarter-to-quarter changes and instead look at how the economy compares to the fourth quarter of last year, before the pandemic began. If economists’ forecasts are correct, G.D.P. will be 3 to 4 percent lower in the third quarter than at the end of last year. By comparison, G.D.P. shrank 4 percent over the entire year and a half of the Great Recession a decade ago.

In other words: Even after the record-setting rebound in the third quarter, the economy is still in a hole as large as the worst point of many past recessions.

Here is where things get really confusing: Third-quarter growth will look historically strong, even though all three months that made up the quarter were relatively weak.

That seeming paradox is the result of how the government reports G.D.P. statistics.

Quarterly G.D.P. figures represent the average amount of economic output over a three-month period. In normal times, output changes only gradually — growing or shrinking only 2 or 3 percent per year — so the change from the first month of a quarter to the last is small.

Last spring, however, changes that would ordinarily take years played out in a matter of weeks. Monthly estimates from IHS Markit show that G.D.P. fell more than 5 percent in March and more than 10 percent in April, before rising roughly 5 percent in May and 6 percent in June.

Quarterly averages obscure those big swings, however. G.D.P. fell 1.3 percent in the first quarter (when two relatively normal months were followed by the big drop in March) and 9 percent in the second (when output plunged in the first month of the quarter then rose in the next two).

The big rebound in May and June meant that the third quarter effectively had a head start. In fact, even if there had been zero growth in July, August or September, and the economy had stayed exactly the same size as at the end of the second quarter, that would still represent 5.4 percent quarterly growth — the strongest gain on record.

Recovering Lost Ground

Monthly and quarterly U.S. gross domestic product in 2020




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Change in

AVERAGE from

previous

quarter

Very little forecasted

month-to-month

change within Q3

QUARTERLY

AVERAGE

–9.0%

+7.5%

THIRD

Quarter

(forecast)

First

Quarter

SECOND

Quarter

$15

trillion

$10

$5

Jan.

Feb.

Mar.

April

May

June

July

Aug.

Sept.

Very little forecasted

month-to-month

change within Q3

Change in AVERAGE from

previous quarter

–9.0%

+7.5%

QUARTERLY AVERAGE

First Quarter

SECOND Quarter

THIRD Quarter

(forecast)

$15 trillion

$10

$5

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.


Note: Monthly G.D.P. estimates are shown as seasonally adjusted annual rates, adjusted for inflation.

Source: IHS Markit

By Ella Koeze

Of course, the economy did experience some growth during the third quarter. IHS Markit estimates that G.D.P. grew about 1.5 percent in July and less than 1 percent in August and September. But those are much weaker gains than the quarterly G.D.P. figures might seem to suggest.

“Statistics that we’re used to using for small and slow movements are basically broken when it comes to looking at large and rapid movements,” said Justin Wolfers, a University of Michigan economist who occasionally contributes to The New York Times. “Typically a recession plays out over many quarters. This one played out over many weeks. So looking at the data through the lens of quarterly data misses all the action.”

Gross domestic product in the United States is usually reported at an annual rate, meaning how much output would grow or shrink if that rate of change were sustained for a full year. That convention makes it easier to compare data collected over different time periods. But during periods of rapid change, annual rates can be confusing.

In the second quarter, for example, G.D.P. fell at an annual rate of 31.4 percent. That makes it sound as if the economy shrank by nearly one-third, when in fact it shrank by a bit less than a tenth.

To avoid confusion, in the coverage of Thursday’s report, The Times plans to emphasize simple, nonannual percentage changes from both the second quarter and the fourth quarter of last year, before the pandemic began. (We gave a more detailed explanation of this decision before the second-quarter report in July.)

When the pandemic first hit last spring, many economists and policymakers hoped that by shutting down nonessential businesses and encouraging people to stay home, the United States could quickly bring the virus under control, then reopen with minimal lasting economic damage. That would allow for a “V-shaped” recession and recovery — a steep drop, followed by an equally steep rebound.

Relative to that expectation, the U.S. response has been a failure. The economy bounced back in May and June, but only partway. Most forecasters don’t expect G.D.P. to return to its pre-pandemic level until late next year at the earliest.

Compared with forecasts from April and May, however, the economic rebound has beaten expectations. The nonpartisan Congressional Budget Office, for example, released a forecast in late April showing a steeper second-quarter decline and a weaker third-quarter rebound than ended up happening. The office also expected the unemployment rate to stay above 10 percent through the end of this year; instead, the rate fell below that benchmark in August, and fell further to 7.9 percent in September.

The bad news is that progress has slowed sharply since that spring rebound. Many economists have recently revised downward their forecasts for the end of the year, in part because Congress did not provide more stimulus money before the election.

“The recovery has been faster than expected, but it is bending off pretty sharply,” Mr. Herzon said. “We got a sharp recovery, but there appears to have been a limit to that recovery.”

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Biden Fills Yellen-Led Economy Team, Risks Clash on Budget Chief – BNN

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President-elect Joe Biden rolled out the first set of nominations for his economic team on Monday, formally announcing his selection of Janet Yellen to be Treasury secretary, Neera Tanden to lead the Office of Management and Budget and Cecilia Rouse to head the Council of Economic Advisers.

Biden also announced his intent to nominate Adewale Adeyemo, a former senior adviser at BlackRock Inc., to be deputy Treasury secretary. Adeyemo is a Nigerian-born attorney and president of the Obama Foundation.

“As we get to work to control the virus, this is the team that will deliver immediate economic relief for the American people during this economic crisis and help us build our economy back better than ever,” Biden said in a statement.

If confirmed, the nominations of Yellen, Tanden and Rouse would be the first time the top three Senate-confirmed economic positions went to women. Tanden’s nomination already appeared to be in trouble with Senate Republican aides expressing opposition on Sunday even before it was formally announced.

Biden has also tapped two economic advisers from his presidential campaign, Jared Bernstein and Heather Boushey, to be members of the CEA.

Biden did not announce his pick for a key White House economic post, director of the National Economic Council. But Brian Deese, another BlackRock executive who served in the Obama administration, is likely to be offered the job, people familiar with the matter said.

Drew Brandewie, an aide to Texas Republican Senator John Cornyn, said on Twitter that Tanden “stands zero chance of being confirmed.”

Another aide said Republicans in the Senate would certainly block Tanden, who’s viewed as too progressive even though she’s also had squabbles with some on the left.

The choices show Biden turning to experienced Washington hands as he begins building his economic team, with an eye toward racial and gender diversity.

The group of six nominees includes three women, two African Americans and an Indian American as Biden seeks to put women and minorities in jobs historically held by White men.

Embedded Image
Neera Tanden, president and chief executive officer of the Center for American Progress, speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Tuesday, April 30, 2019.  (Bloomberg) 

He received some criticism from Representative Jim Clyburn, the most senior Black lawmaker in Congress, who is credited with helping Biden with the South Carolina primary, a win that sped his progress toward the nomination.

In an interview with Juan Williams for his column in The Hill newspaper, Clyburn indicated he was disappointed the president-elect had named just “one Black woman so far” to a senior position — Linda Thomas-Greenfield as United Nations ambassador.

“I want to see where the process leads to, what it produces,” Clyburn added. “But so far it’s not good.”

Tanden, an Indian-American who currently leads the liberal think tank Center for American Progress, worked on the Obama administration’s health-care reform and was a close adviser to Hillary Clinton.

Rouse also worked in the Obama administration as a member of the CEA and is currently dean of Princeton University’s School of Public and International Affairs. If confirmed, she would be the first African American to chair the CEA.

Adeyemo would bring international economic experience to the Biden team, complementing Yellen’s more domestic focus over the course of her academic and government career. Adeyemo was deputy chief of staff to Jack Lew when he was Treasury secretary and was the first chief of staff of the Consumer Financial Protection Bureau under Elizabeth Warren.

Bernstein and Boushey are well liked by progressives. Boushey, who runs the Washington Center for Equitable Growth, has advocated for paid parental leave and raising the minimum wage. Bernstein was Biden’s chief economic adviser in the White House during President Barack Obama’s first term.

Biden’s team will inherit a U.S. economy rocked this year by the coronavirus pandemic, and will have to try to sustain its revival. There’s already signs of increasing fragility as virus infection rates increase and states begin to lock down businesses again. That threatens the nascent recovery of the labor market, with jobless claims ticking up and payroll gains forecast to slow further in November.

–With assistance from Katia Dmitrieva, Catarina Saraiva and Erik Wasson.

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COVID-19 has sucked the oxygen out of the room on the climate economy – CBC.ca

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The Niagara Falls of news releases into any journalist’s in-box attest that there is always plenty of contention for the moving spotlight of media attention.

As early as March of this year, the Pew Research Institute, a think-tank that studies media trends, observed that people had become “immersed in COVID-19 news.”

And while other issues have occasionally nudged the pandemic and its economic impact off centre stage, it is hard to think of many subjects that have so consistently hogged the limelight for so many months in a row.

According to one of Canada’s leading environmental economists, that single-minded focus has both diverted and delayed attention on a subject that he expected in 2020 would finally get its moment in the sun: climate change.

Shut out by pandemic

“For two months or even three, people like me were shut right out because ministers were dealing with aspects of COVID in cabinet,” said Mark Jaccard, one of Canada’s foremost climate scientists who is often described as an architect of the pioneering carbon-pricing scheme introduced by the B.C. Liberals back in 2008.

With what may have turned out to be bad timing, the Simon Fraser University professor’s political manual, The Citizen’s Guide to Climate Success, finally hit bookstores in February — just before the pandemic began to dominate the news agenda.

While inevitably disappointed, the longtime adviser to governments on practical climate economic policy remains philosophical. Jaccard’s biggest idea — one that some climate activists may find frustrating — is that the only realistic path to defeating climate change is political action to install “climate-sincere” politicians and governments and then hold their feet to the fire.

This was supposed to be a year of climate action in Canada, but Chief Public Health Officer Dr. Theresa Tam, left, gets more recognition points than Minister of Environment and Climate Change Jonathan Wilkinson. (Blair Gable/Reuters)

While personal attempts to eat less meat, say, or buy an electric car make individuals feel good about themselves and may influence a few others, Jaccard insists that the short-term economic advantages of adding carbon to the atmosphere are so lucrative that they require concerted government action to push things the other way.

And putting political pressure on governments means garnering media and public attention, something harder to do when the whole world is worried about something that seems far more pressing — namely a deep economic recession caused by a deadly health crisis that just won’t go away.

“You have policy windows,” Jaccard said, referring to those moments such as after Hurricane Katrina, which struck New Orleans and the surrounding area in 2005, or following the past year’s devastating forest fires in Australia and the U.S. west, when the public and politicians are forced to take climate issues seriously.

He said COVID-19 is just the 2020 version of a series of global events that have redirected attention away from the climate change issue just as it was beginning to take off.

‘We got really excited’

“We got really excited about the Kyoto Protocol in the late 1990s, and then along came 9/11 — and everyone got diverted with the U.S. wanting to invade countries in the Middle East,” Jaccard said, referring to terrorist attacks on the United States on Sept. 11, 2001.

“And then you could say the same thing when we got excited about Hurricane Katrina, and you had Republicans and Democrats in the mid-2000s putting together policy … and China started to say, ‘Uh-oh we better get going.’ And then along came the [2008] financial crisis.”

As the world, and especially Canada, seemed to be getting the pandemic under control during the summer, climate advocates were hoping their issue would come to the top of the agenda. But subsequent waves of the disease once again pushed COVID-19 stories to the top of the “most read” columns, narrowing the news hole for climate coverage.

While political analysts were expecting a nod to green spending in Monday’s fiscal update, they say short-term allocations will mostly be diverted, quite reasonably, to bailing out parts of the Canadian economy devastated by a new round of pandemic lockdowns.

Farmers use fire to clear land in the Amazon basin. Economist Mark Jaccard says schemes to lock carbon in biological systems does not guarantee it will stay there for the long term. (Rickey Rogers/Reuters)

Jaccard says that has added to delays, as the latest government plan — to use post-pandemic economic recovery spending to advance the green agenda in a way that will finally put Canada on a path to Paris 2030 — has meant previous policy plans and spending have been deferred.

Despite the latest postponement, Jaccard remains hopeful. Conversations with conservatives have left him with the impression that even a change of government would not prevent Canada from moving forward on the climate change agenda.

And while he thinks the Trudeau government remains “climate-sincere,” he says media attention is essential to keep pressure on the Liberals not to spend too much money on political feel-good plans, such as tree planting, at the expense of real measures to cut carbon output. As The Economist reported recently, growing trees in one place doesn’t mean they aren’t being cut down elsewhere, and natural systems tend to return their carbon back to the atmosphere.

“If you’re allowing someone to keep polluting and then you’re sort of convincing yourself that you have offset that or compensated it,” Jaccard said, “the careful evidence doesn’t support that.”

Part of Jaccard’s continued optimism is due to the election of what looks like a climate-sincere Democratic government south of the border that — even without the support of a Republican Senate — can begin to make greenhouse gas-limiting regulations.

The election of a Joe Biden presidency may have created a new “policy window,” he said, as the U.S. moves toward existing Canadian schemes such as the coal phaseout regulation, where Canada is a leader. Meanwhile, Jaccard expects a U.S. push toward such things as the clean fuel standard, which will coax Canada into following suit as manufacturers insist on one set of rules for all of North America.

Follow Don Pittis on Twitter: @don_pittis

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Biden looks to fill out economic team with diverse picks – EverythingGP

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Yellen became Federal Reserve chair in 2014 when the economy was still recovering from the devastating Great Recession. In the late 1990s, she was President Bill Clinton’s top economic adviser during the Asian financial crisis. Under Biden she would lead the Treasury Department with the economy in the grip of a surging pandemic.

If confirmed, Yellen would become the first woman to lead the Treasury Department in its nearly 232-year history. She would inherit an economy with still-high unemployment, escalating threats to small businesses and signs that consumers are retrenching as the pandemic restricts or discourages spending.

NEERA TANDEN, Office of Management and Budget director

Tanden is the president and CEO of the liberal think-tank Center for American Progress. She was the director of domestic policy for the Obama-Biden presidential campaign, but she first made her mark in the Clinton orbit.

Tanden served as policy director for Hillary Clinton’s 2008 presidential campaign. Before that, she served as legislative director in Clinton’s Senate office and deputy campaign manager and issues director for Clinton’s 2000 Senate campaign. She also served as a senior policy adviser in the Bill Clinton administration.

If confirmed, she would be the first woman of colour and the first South Asian woman to lead the OMB, the agency that oversees the federal budget.

BRIAN DEESE, director of the White House National Economic Council

Deese, a former senior economic adviser in the Obama administration and now the managing director and global head of sustainable investing at BlackRock, would be the top economic adviser in the Biden White House. He worked on the auto bailout and environmental issues in the Obama White House, where he held the title of deputy director of both the NEC and the OMB.

CECILIA ROUSE, chairwoman of the Council of Economic Advisers

Rouse is a labour economist and head of Princeton University’s School of Public and International Affairs. She served on the CEA from 2009 to 2011, and served on the NEC from 1998 to 1999 in the Clinton administration.

Notably, she organized a letter earlier this year signed by more than 100 economists calling for more government action to mitigate the fallout for Americans caused by the coronavirus pandemic.

Rouse, who is Black, would be the first woman of colour to chair the CEA.

Biden is also expected to name Heather Boushey, the president and CEO of the Washington Center for Equitable Growth, and Jared Bernstein, who served as an economic adviser to Biden during the Obama administration, to serve on the council. Both Boushey and Bernstein advised Biden during the presidential campaign.

___

Associated Press writers Alexandra Jaffe, Christopher Rugaber and Michael Balsamo contributed to this report.

Aamer Madhani, The Associated Press

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