The rate of unemployment in the USA in 2020 and 2021 indicates the the real GDP per capita in 2021 is only 87.5% of that in 2019

 We have developed and published (last version in 2021) an economic model linking the change rate in the real GDP per capita and the rate of unemployment. Figure 1 presents the performance of this model since 1947 when the real GDP and unemployment estimates became more or less reliable. There are four structural breaks in the model due to severe changes in the real GDP (e.g., imputed rent introduction) and unemployment estimates. These breaks are introduced in the years of the definitional changes, not from data behavior, and thus are legitimate. Statistical estimates (regression and the error) of the model for the period between 1947 and 2019 are presented in Figures 2 and 3. Overall, the model is excellent in the prediction of unemployment from the real GDP per capita and vice versa. We do not discuss the causality direction here, since both parameters depend on more fundamental factors. Essentially, the real GDP and unemployment are different measures of economic growth. 

The current pandemic ruins the model, as Figure 3 shows. The rate of unemployment (data from bls.gov) is much higher than that predicted by the real GDP per capita change (data from bea.gov). For 2020, the unemployment rate was 8.1% and the prediction was only 4%. The model failure may have different causes, and we assume that the estimates of real GDP per capita are wrong because it includes the government transfer taken from sources outside the US economy. The COVID-19 driven money transfer is counted as an internal economic source and passes to the real GDP estimates through the Personal Consumer Expenditures. Since the causality direction is not applicable to the model, we have two estimates of the same economic parameter driving both measures, GDP, and unemployment. Unemployment is easier to count, and the estimate of 8.1% is rather accurate for 2020. The real GDP per capita corresponding to this rate has to drop by 19.8% from the 2019 level. In this blog, we made a similar estimate of a 21.7% drop in real GDP a year ago. The reason for the difference between the published and predicted real GDP per capita was the same – government transfers. Now, the estimate of the unemployment rate supports our previous finding.  Figure 4 shows the same curves as in Figure 1, but the real GDP estimates are calculated from the observed unemployment rates in 2020 and 2021. The drop in real GDP per capita in 2020 was 19.8% and the growth in 2021 – 9%. These estimates mean that, in real terms, the US economy is currently at the level of 87.5% of that in 2019. The real economic fall since 2019 is 12.5%

 

Figure 1. The observed and predicted from real GDP per capita rate of unemployment.

 

Figure 2. Statistical link between the measured and predicted rates of unemployment between 1947 and 2019.

 

Figure 3. Time evolution of the model error between 1947 and 2019

 

Figure 4. Same as in Figure 1 for the period 2005 to 2021 and the real GDP estimates obtained from the rate of unemployment.