In a new report, economists at the University of Michigan in Ann Arbor predict that the COVID-19 pandemic will lead to unemployment rates higher than those during the Great Recession.
However, an aggressive federal financial response and improving public health picture is expected to usher in steps toward recovery starting in the second half of the year.
The economists released an interim update to the U.S. and Michigan Economic Outlook for 2020-2022 on Thursday. It shows an expected 7 percent drop in U.S. gross domestic product from the first to the second quarter this year, or 25 percent on an annualized basis. The national unemployment rate is expected to reach 16 percent in May and average 14 percent during the second quarter.
The forecast shows that Michigan’s employment rate is expected to rise to about 24 percent in the second quarter. This is higher than during the 2009 recession, as well as the state’s previous peak of jobless rate of about 16 percent in fourth quarter of 1982.
“This recession is very different from previous downturns because limiting the spread of the disease requires many non-essential workers to stay away from their jobs,” wrote the economists, who are part of U-M’s Research Seminar in Quantitative Economics. Therefore, the current reduction in economic activity is an investment in public health. … Of course, along with that goal comes the responsibility to cushion the economic hardship inflicted by the pandemic.”
While the federal response through stimulus efforts is “faster and more aggressive than we had expected,” the economists say more help for small businesses and state and local governments will be necessary.
The forecast assumes the public health picture will improve in the weeks ahead, allowing for the economy to begin rebounding in early June and jobless rates to start to fall. However, the economists caution another surge in new cases and attendant orders to the counteract cannot be ruled out.
The report is available here.