When Covid-19 hit the United States with full force in early 2020, thousands of business were forced to shut down, millions of Americans lost their jobs within weeks and, as a result, second-quarter GDP plummeted by an unprecedented 29.9 percent. At the time, there was a lot of uncertainty over how quickly the economy would bounce back, but now, almost three years later, it can safely be said that the recovery has been nothing short of impressive.
With total nonfarm employment returning to its pre-pandemic level in August 2022, the labor market remains remarkably strong, despite the Fed's best efforts to cool it down to tame inflation. More importantly though, the economy as a whole has also returned to its pre-pandemic growth trajectory. According to the first preliminary estimate released by the U.S. Bureau of Economic Analysis (BEA) on Thursday, real GDP grew 2.1 percent in 2022, following up strongly on a 5.9 percent increase in 2021.
As the following chart illustrates, Covid-19 did put a dent in U.S. economic growth but, thanks at least in part to generous stimulus spending, it didn't throw it of its trajectory. It remains to be seen if we're going to pay the price for the swift recovery in 2023. With inflation still high and the Fed determined to bring it down by further tightening measures, many are expecting a slowdown or even a recession this year. With the labor market, private investment and consumer spending looking very robust though, there are also voices hoping that inflation can be reigned in without sliding into recession.
