WSJ Survey: U.S. Recovery From Pandemic Shock to Begin by Third Quarter

WSJ Survey: U.S. Recovery From Pandemic Shock to Begin by Third Quarter

The labor market will fare better than previously expected, economists say.
By  Harriet Torry and Anthony DeBarros

The U.S. economy will be in recovery by the third quarter of this year, economists said in a survey that also concluded the labor market will fare better than previously expected following the effects of the coronavirus pandemic.

A monthly Wall Street Journal survey found that more than two-thirds of economists, 68.4%, expect the economic recovery to start in the third quarter. Just over a fifth, 22.8%, said it already began in the current, second quarter. The U.S. entered a recession in February, the National Bureau of Economic Research determined this week.

Business and academic economists polled in the survey expect gross domestic product to shrink 5.9% this year, measured from the fourth quarter of 2019, a slight improvement from the 6.6% contraction economists predicted in last month’s survey. They also expect, on average, that the unemployment rate will be slightly lower by December, 9.6%, compared with last month’s forecast of 11.4%.

Diminishing Downside Risks

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“The upswing has already begun, although full recovery will take time,” said Lynn Reaser of Point Loma Nazarene University, a former chief economist at Bank of America Corp.

In the June survey, 69% of economists said they expect the recovery to be shaped like a “swoosh.” So named because it recalls the Nike logo, it suggests a large drop followed by a gradual recovery. That was broadly unchanged from May.

Joseph Brusuelas, chief economist at RSM US, said he is “not looking forward to an elongated and frustratingly slow recovery.”

Diminishing Recession Odds

On average, economists expect the Fed will keep its benchmark short-term interest rate pinned near zero for the next two years, a forecast in line with the Fed’s own projections. The surveyed economists see one quarter-percentage-point increase by June 2022 and another by December 2022.

Federal Reserve officials on Wednesday indicated that interest rates were likely to stay put through 2022 and said they were committed to providing more support to the economy following shutdowns to contain the coronavirus.

Economists don’t think that support will include experimenting with negative policy rates, a remedy tried by the Bank of Japan, the European Central Bank and the central banks of Sweden, Denmark and Switzerland.

While President Trump has tweeted in favor of negative interest rates, Federal Reserve officials have indicated little appetite to cut interest rates below zero.

Just 1.7% of economists expected the Federal Reserve will cut its benchmark policy rate below zero in the next two years. In response to a separate question, no economists in the survey said the Fed should go negative to provide further economic stimulus.

“The Fed has been clear—the threshold for negative rates is extremely high, and they do nothing to cure what ails an economy hobbled by a pandemic,” said Diane Swonk, chief economist at Grant Thornton.

The Wall Street Journal surveyed 62 economists from June 5-9, though not every economist answered every question.

Write to Harriet Torry at