“It almost feels like today is the first day,” Trump said during a White House meeting on Monday. “People are starting to go out. They’re opening. They get it.”
The White House’s rosy view of the U.S. economy’s trajectory clashes with the dire predictions of many mainstream economists, as well as Federal Reserve Chair Jerome H. Powell, who is set to testify before the Senate Banking Committee on Tuesday alongside Treasury Secretary Steven Mnuchin.
Powell said last week that lawmakers should strongly consider passing additional stimulus measures to avoid a severe and prolonged economic downturn. The unemployment rate rocketed from 3.5 percent in February to 14.7 percent in April, and it is projected to continue climbing.
Many economists and Wall Street analysts say the unemployment rate could remain above 10 percent into 2021 — a level unseen since the Great Depression — even if lawmakers approve more emergency aid. Powell said in a “60 Minutes” interview that it could eclipse 25 percent later this year.
White House economic officials say some of these trends can be quickly reversed. They are monitoring the reopening of states such as Georgia and Texas with cautious optimism that they could presage a broader recovery, according to two people in communication with them who spoke on the condition of anonymity to discuss private talks.
On Monday, White House economist Kevin Hassett cited what he called positive economic trends in retail, business reopenings, and credit card transaction data over the past two weeks. He said the administration has “a little bit of a luxury to watch and see” before having to approve additional aid.
“I’ve been really positively impressed by how quickly things are turning around,” Hassett told reporters Monday. He added at a separate White House event: “I was pretty depressed about how bad it looked a few weeks ago, but you can really see it turning on faster than I thought."
Numerous economists and the leader of the nation’s central bank are strongly warning against too sunny a view of the economic recovery. Critics say Trump and his aides have for months overstated how quickly the economy might rebound, and the White House risks exacerbating the already devastating economic impact of the virus by delaying additional emergency assistance.
Few economists outside the White House are talking about a V-shaped recovery anymore, a scenario in which the economy rebounds just as quickly as it plummeted. Analysts say major threats to the economy will persist even if states fully relax their public health restrictions because many Americans will not quickly return to work and consumer spending will lag.
The nonpartisan Congressional Budget Office has projected an unemployment rate of above 10 percent for 2020 and 2021. Goldman Sachs has similarly projected the unemployment rate could remain at 10 percent by the end of this year, even with an additional aid package.
Powell has urged Congress and Trump to consider spending more money to aid the economy. In the “60 Minutes” interview broadcast Sunday, he urged lawmakers to focus on helping the unemployed pay their bills and assisting small businesses, many of which can only partially reopen. He warned the recovery is likely to be slow and could take until the end of 2021.
“If we let people be out of work for long periods of time, if we let businesses fail unnecessarily, waves of them, there’ll be longer-term damage to the economy. The recovery will be slower,” Powell said in the “60 Minutes” interview. “The good news is we can avoid that by providing more support now."
The White House appears to be unlikely to approve help soon. Administration officials aren’t engaged in serious negotiations with House Speaker Nancy Pelosi (D-Calif.) over the $3 trillion aid package approved by the House on Friday, according to a congressional aide.
The rate of economic growth probably will increase in the third quarter, analysts say, but even a dramatic increase may be insignificant given the steep contraction in the period from April to June. Among economists at big companies, 86 percent expect the U.S. economy will decline between March 2020 and March 2021, according to a survey last month of more than 100 who are part of the National Association of Business Economics.
“What matters to people is not GDP rates, seasonally adjusted at an annual growth rate,” said Michael Feroli, chief U.S. economist at JPMorgan. “It is the labor market and unemployment and jobs. And it’s very likely that, by the end of the year, the unemployment rate could still be north of 10 percent.”
When the unemployment rate is high, Americans tend to pull back markedly on spending, which creates a huge drag on the economy. It can take a long time for consumer confidence to recover, a necessary step before Americans begin resuming sizable purchases.
On Monday, White House officials voiced increasing optimism about the economic recovery despite these dire predictions. Larry Kudlow, director of the White House’s National Economic Council, cited improvements in housing and gasoline demand, as well as an increase in the New York state manufacturing index.
“Unemployment claims look terrible, but they look a lot less terrible,” Kudlow said at a White House event with restaurant executives. “Things are starting to turn — that’s my take.”
Trump has for weeks been the leading cheerleader of a rapid economic recovery, saying in early April it will take off “like a rocket ship” after the virus is contained. The president’s confidence in a “spectacular” economic comeback is shared by White House officials, said Stephen Moore, an economic adviser to the White House at the Heritage Foundation, a conservative think tank.
“From the people at the White House I talked to over the weekend, there’s a renewed sense of optimism that things are working out,” Moore said. “They feel like the direction of things is good, very positive, in terms of the sense of crisis is lessening, and that this is playing up pretty much as had been hoped.”
White House officials have maintained they will step in and approve more aid if subsequent economic data shows it is necessary. Mnuchin has also proved willing to negotiate with congressional Democrats, helping to spearhead the $2 trillion Cares Act passed in March.
Hassett said existing federal efforts have involved “really, really big, massive interventions,” bigger than the efforts in the New Deal of the 1930s.
“It’s at least appropriate to see how they go,” Hassett said.
Some White House officials have also quietly signaled their openness to additional aid for states and cities, despite internal angst among some senior advisers about the growing deficit, suggesting the administration’s flexibility on additional spending measures. There is growing concern that state budget cuts could lead to large numbers of layoffs, which could create major political problems ahead of the presidential election in November.
“I don’t think, politically, that Senate Republicans or the White House can withstand the pressure from more bad economic news and the media drumbeat suggesting more help needs to come,” one senior Republican aide said, speaking on the condition of anonymity to frankly describe internal dynamics.
Some economists warn that delaying relief measures now could mean more economic pain for Americans later, arguing the White House does not have time to waste.
Claudia Sahm, who served as an economist at the Council of Economic Advisers under the Obama administration, says unemployment could rise above 30 percent without trillions more in emergency federal spending. Downplaying the extent of the economic carnage may be what the president wants to hear, Sahm said, but it could backfire if it results in slower federal action.
Trump and Kudlow have minimized or downplayed the economic threat posed by the coronavirus since the outbreak began in the United States in February, predictions that have since proved incorrect. Kudlow said in late February that the U.S. had a “pretty close to airtight” containment of the virus, which proved untrue.
At the time, the stock market appeared to be ignoring the upbeat statements from White House officials as it fell precipitously. Lately, though, the market appears to be sharing some of the White House’s optimism, even if other measurements of the economy paint a much different picture.
“Complacency among policymakers is what made the ‘Great Depression’ a depression. If they do not do more, if they ‘wait and see,’ they will do exactly what happened in the 1930s,” Sahm said.