Illinois’ economy likely shrank by $86 billion during Q2, national data suggests
Data published last week by the Bureau of Economic Analysis revealed that U.S. gross domestic product shrank at an annualized rate of -32.9% during the second quarter.
An additional 24,712 Illinoisans filed for unemployment the week ending Aug. 1, bringing total job losses to 1,553,109 since COVID-19 and associated lockdown measures began shutting down the state’s economy, according to new data from the U.S. Department of Labor. The numbers come a week after shocking economic data revealed the U.S. experienced the sharpest quarterly downturn in history during the second quarter.
Advance estimates by the Bureau of Economic Analysis on July 30 revealed just how bleak Q2 was for the national economy: GDP shrank at an annualized rate of 32.9%, the largest quarterly decline ever recorded. Meanwhile, the data confirmed GDP declined at an annual rate of 5% during the first quarter.
The estimates also likely mean Illinois’ economy shrank by nearly $86 billion in Q2, or $940 million per day, amid the coronavirus and associated state-mandated lockdowns. This is because Illinois’ industry mix is very similar to that of the country, and shrank at almost the same rate as the national economy in Q1.
GDP represents the total dollar value of all goods and services produced over a specific time period. In short, it’s everything produced by people and businesses, including salaries of workers. As a matter of accounting, GDP is sum of all private households and government expenditures. Changes in real GDP are closely related to changes in living standards.
The economic shock caused by COVID-19 resulted in a large decrease in consumption and employment as individuals reduced their social interactions in order to stop the spread of the disease. Government-imposed lockdowns exacerbated the magnitude of this decline in economic activity.
Absent government stimulus, many businesses will have to close permanently. It also means Illinoisans who lost their jobs will find it increasingly difficult to make ends meet. Many families will struggle to keep up on their rent, mortgage and credit card payments. It also means the risk of default has increased for many families and businesses.
Unfortunately, despite two record income tax hikes and the longest economic expansion on record, the state of Illinois only had $1.2 million in its rainy-day fund at the start of the crisis – enough to fund 15 minutes’ worth of state spending. The lack of a rainy-day fund meant that not only could the state not offset declining revenues, but that any hopes of state aid for struggling businesses were essentially a non-starter. Meanwhile, for individuals filing for unemployment, many experienced lengthy delays in receiving benefits, while some are still awaiting assistance.
The latest GDP figures come just before the pivotal July jobs report – scheduled to be released on Aug. 7 – which will offer insight as to whether the national economy continued to pick up steam or if second-wave concerns and the reinstatement of lockdown measures in some states have dampened the national recovery. Both of these reports will likely inform the current debate in Congress on what exactly will make its way into the next federal stimulus bill.
While Washington is focused on short-term stimulus injections to keep the economy afloat, Illinoisans can reinforce the state’s economic foundation to ensure the most robust recovery possible. Illinois voters need to consider the potential for the COVID-19 economic damage to be magnified by the progressive income tax hike state leaders are seeking Nov. 3. Economists argue against increasing taxes during a recession, as tax hikes are likely to cause even more economic damage and permanently eliminate jobs.
Pritzker’s “fair tax” will increase taxes up to 47% on more than 100,000 small businesses just as they are trying to recover from the COVID-19 economic damage. Those small businesses are responsible for the vast majority of new jobs in Illinois.
A tax hike would only serve to kneecap any potential economic recovery.