There seems to be some contention as to how poorly the U.S. economy has been doing, and hopefully by the end of this article, you will be better informed as to the current state of our economy. When it comes to measuring the health of a country’s economy, there are many metrics that can be considered, each helping to tell the full story. No single metric can show the whole picture, but some are more helpful than others.
The first metric I will point out is the stock market. There have been many statements saying that it is remaining healthy and surging back from its dips. Although it is performing relatively well, as stocks continue to rise, there is a highlighted issue with it. If COVID-19 has really hurt the economy, why are stocks still rising?
This question can be answered by knowing the current makeup of the stock market. If we are talking about the S&P 500, we are looking at the performance of 500 of the largest companies in the United States. Upon looking at the S&P 500’s history, you can see that it took a massive hit, losing over 1,000 points due to COVID back in March, yet it has now basically all recovered.
The reason for this recovery is mostly due to the largest companies lumped into the S&P 500. The large companies, such as Amazon, Apple and other large technology companies, have been performing so well in this era of COVID, that they have brought up the average growth for all the other companies. Meaning that the top 10 or so companies within the S&P 500 have been driving the growth for the other about 490.
You can see this in the net worth change of Jeff Bezos, as he gained over $71 billion during the pandemic alone. In short, the stock market is not the best measurement if you are looking for how the average American is doing or even the country.
A good statistic to see the country’s economic health is to see the gross domestic product (i.e. GDP, the measure of all the goods and services produced, not reused, in a specific time period on a monetary scale) growth of that country. So, as of 2018, the United States has the largest GDP in the world of over $20 trillion, followed by China with around $13 trillion and Japan in third place with about only $5 trillion.
So the GDP growth is the percentage of how much that total either grew or shrank. Since the start of COVID, the GDP of the U.S. shrank about 5% in the first quarter of the year and by around 31.4% in the second quarter of the year. To put that into perspective, the largest drop in growth before that was before 1960 with an only 10% drop.
The website below is from the Bureau of Economic Analysis, which is owned by the United States Government, showing the GDP performance over the most recent economic quarters. This website will help show the significance of the previously listed numbers in regards to GDP and other related statistics.
You can see the stark contrast in how the stock market portrays the economy as opposed to how the GDP growth percentage does. It is like looking at two different countries or realities, one where the economy bounced back and another where the economy is at its lowest point it has ever been.
We are in a recession, a period where the GDP has not grown but shrank in two continuous economic quarters. With around 7.9% unemployment still, the near future looks bleak if the virus continues. Our current economy is not as prosperous as it may seem.
Evan Brooks is a third-year Business Management major with minors in Economics and Civic and Professional Leadership. EB0916132@wcupa.edu