October 13, 2020

By Harris L. Kempner, Jr., President

The U.S. economy is recovering, but the recovery is slowing down from the surge in the 2nd Quarter. There still remains high unemployment of approximately 7.9% and over 11 million people unemployed, which is as high or higher at the worst of the recession of 2008 – 2009. We are also facing a gradual return of high levels of COVID-19 this fall, which could conceivably cause open businesses to close once more in parts of the country. However, to balance this off, we think that new stimulus is coming post-election, no matter who wins. In some electoral cases it is likely to be larger than others but will be a substantial amount no matter what – at least $1 trillion. This new stimulus will begin to lead us back to solid growth and some reduced unemployment in the 4th Quarter.

In addition, we are getting closer to treatments as well as vaccines for COVID. Whatever happens this fall and winter in the short-term, we believe that by the early part of next year, there will be the beginnings of various means of attacking COVID. So, in the very short-term this year is clouded with uncertainties, including the election, but longer-term, we presently feel that the trends of science and stimulus will make it possible for the economy to grow about 3-4% in 2021.

However, it needs to be recognized that beneath the surface of this steady growth in the economy, the economy is severely bifurcated. Instead of a “U” or a “V”, it looks much more like a “K”. The rising top of the “K” is the segment of the economy in which the employment has been growing all through the COVID pandemic – technology companies, goods such as foods, consumer items, some financial services, etc. Those who work in those industries are doing well with income growth being okay and savings rates being very high compared to the past. Those who own houses are benefiting from increased valuations for borrowing purposes.

But on the other hand, the down-sloping “K” includes the poorest, large numbers of people of color, and the least educated. Unlike the first part of this year, their situation is not only bad, it seems to us to be trending somewhat worse as far as unemployment is concerned. We want to point this out because these uneven results are politically explosive for the country no matter who wins, and must be kept in mind when deciding how well the U.S. economy is doing in the next year.