The Coronavirus pandemic is putting an end to the longest economic
expansion in U.S.
history. We are going into a global recession.
We're in an economic downturn.
The world is now in recession.
Recession in the next quarter or two because everything is shutting down of
course. As millions of us remain under orders to stay home, factories have
closed and businesses have shut down.
Entire parts of the U.S.
economy are at a complete standstill.
This is an extraordinary disruption.
It's almost like a meteor hit the entire planet.
And we have to now deal with the fact that we've been knocked off our
axis. The Federal Reserve and Congress are taking extraordinary steps to
try to keep the economy afloat.
Still, economists warn this recession will be unlike other downturns in
recent history because it was spawned by a health crisis, not by an
unhealthy economy.
We may well be in recession, but again, I would point to the difference
between this and a normal recession.
This isn't, there's nothing fundamentally wrong with our economy.
So why is the coronavirus pandemic causing a recession and how long will it
last? In technical terms, economies enter a recession after
two consecutive quarters of negative GDP growth.
Now the U.S. government isn't scheduled to release first quarter GDP data
until the end of April and second quarter data until July.
So it'll be a while before the official verdict is in.
But many economists are already predicting double digit declines in GDP
growth in the second quarter of the year.
The biggest quarterly decline we've seen an annualized GDP growth was in
1950 and that was 10 percent.
Most estimates now are for well over 10 percent.
This is probably gonna be the worst we've ever seen.
Based on a range of other indicators, many economists agree the U.S.
has already entered a recession.
The first place we can see recessions signals is in the jobs market.
Industries like retail restaurants, air travel and hotels had laid off
thousands of workers as business has stopped.
Nearly 10 million Americans filed for unemployment insurance claims during
the final two weeks in March, the highest level on record after they were
let go from their jobs as their employers dealt with the impacts of the
virus. Some economists predict the unemployment rate could spike from
three and a half percent in February to 15 percent by the middle of the
year. The labor market is really a reflection of the broader economy, and
we're seeing a lot of signs that we're having a massive increase in
unemployment. Surveys of businesses and consumers are also pointing to a
recession. One March survey found U.S.
companies reported the steepest downturn in economic activity since 2009.
Both the services and manufacturing sectors of the economy tumbled.
Some companies were already suffering from a supply shock after China shut
down factories earlier this year because of the Coronavirus.
Now, the U.S. economy is also suffering from a lack of demand as consumers
stay home. This drop in demand is reflected in the price of oil, which is
near its lowest level in nearly two decades.
Meanwhile, wild swings in the stock market also have Americans worried
about their savings and retirement accounts.
There's no way to sort of even get the calculus on how big of a disruption
this is, because it's really bringing the major parts of the U.S.
economy to a virtual standstill.
Some economists are looking to alternative sources of data to gauge the
economic impact of the Coronavirus pandemic.
One early indicator is consumer spending at restaurants.
This chart shows restaurant reservations through open table in five
countries, including the U.S.
declined 100 percent during two weeks in March.
Consumer spending is over two thirds of the U.S.
economy. You knock out the consumer and you knock down the economy in an
extraordinary way. We're not only knocking out the consumer, we're
shutting down factories.
There is no precedent for a crisis like this.
These dire economic forecasts and dramatic moves in the stock market have
led some to believe this crisis could be worse than the financial crisis
that started in 2007 or maybe even than the Great Depression.
Depressions last much longer than recessions.
The Great Depression went on for more than a decade.
Former Federal Reserve Chairman Ben Bernanke studied the Great Depression
extensively and says the Coronavirus crisis is different.
This has some of the same feel, some of the feel of panic, some of the feel
of volatility that you're talking about.
But it's it's really it's much closer to a major snowstorm or natural
disaster than it is to a classic 1930s style depression.
The main reason this economic downturn is different than many others is
that it's not the result of instability in the financial system like we
saw in the banking sector in the 1930s, the dot com bust in the 2000s or
the housing sector in the mid-2000s.
Instead, it's the result of measures needed to contain a health crisis
like social distancing and isolation.
The most important differences this comes out of the real economy,
something biological.
And people's choices with responding to that and not out of financial
excess. In the words of the current Federal Reserve chairman Jerome Powell
there was no fundamental problem with the economy when the virus hit.
This is a situation where people are being asked to step back from economic
activity, close their businesses, stay home from work.
Many economists say the challenge is to prevent the coronavirus health
crisis from turning into a prolonged financial crisis.
The risk is that a health crisis, something that through small businesses
out of business overnight, something that threw workers, millions of
workers out of work overnight.
A health crisis could become a Great Depression if we don't deal with it
now and provide that support to get through this period of time and have a
recovery on the other side.
Policymakers in Washington have taken big steps to try to reduce the
economic harm of the Coronavirus pandemic.
On March 15th, the Federal Reserve cut interest rates to zero.
It also announced it would buy $700 billion in treasuries and mortgage
backed securities in an attempt to push down longer term rates.
As the central bank has continued to buy more assets since then, the value
of its balance sheet exceeded five trillion dollars for the first time
ever. They have cut the cost of funding about as low as it can go, and
hopefully that does translate into lower mortgage rates, lower auto loan
rates and things that should help the economy when we get to the other
side of this of this hump.
The Fed has also launched emergency programs to make sure other central
banks and financial institutions have enough cash on hand.
The first and most important thing they're doing is providing dollar
liquidity. So not just in the U.S., but around the world.
When there's a crisis of real crisis, people want to have dollar cash on
hand. The Fed's actions are mainly intended to keep credit markets running
smoothly so that the economy can bounce back once the pandemic ends.
There are limits to what the central bank can do while consumers and
businesses are on lockdown.
No one's going to open houses right now.
No one's going to auto dealer lots.
But if those rates stay low, when when we can all leave our houses in the
summertime, hopefully, you know, then maybe you will be more incentivized
to buy that car or that house.
You can't force the economy to grow through this means.
That's why every central banker from Jay Powell on down is saying you need
fiscal policy right now.
Congress is in charge of that fiscal response.
At the end of March, lawmakers passed a record 2 trillion dollar stimulus
package. It included direct payments to individuals, additional
unemployment insurance benefits, loans for small businesses and funding
for industries like airlines.
I think what they have done has been a good a good first step, but they
should be prepared to do more.
Economists say the action that policymakers take now will help determine
how long the coronavirus recession lasts and how quickly the U.S.
economy can recover.
Many agree that the first step on the road to recovery is containing the
spread of the virus.
If you can get the biology under control, then the economy can start to
recover. Some like to think of economic recessions and recoveries in terms
of the letters V U or L.
V is a quick rebound in growth where consumer and business activity
surges after a downturn.
U means a slightly longer downturn followed by a recovery.
L is the worst case scenario, a long, slow recovery like the one we saw
from the financial crisis.
Goldman Sachs, for example, predicts a V-shaped recovery from the
coronavirus, with GDP dropping as much as 34 percent in the second quarter
and rebounding 19 percent in the third quarter.
This will be a very deep recession in terms of GDP loss and job loss.
And the question is, when we get to the other side and when the virus
passes, how you know, how fast to how speedy is the recovery.
Businesses' abilities to stay solvent while they're closed is one factor
that will affect the shape of the recovery.
Another factor is how quickly Americans who are laid off will be able to
get their jobs back. And if the relief from policymakers will be enough to
get them through prolonged uncertainty.
There's also the question of how quickly consumers are willing to go back
to their normal activities even after the virus has been contained.
Nothing is going to force the people of the world to suddenly start flying
airplanes again. Nothing's going to force the people of the world to
suddenly start crowding into stadiums again.
Some are raising alarms that Congress and the Fed are risking another
crisis by increasing debt and deficits with their stimulus measures.
But as the human costs of the pandemic continues to mount, policymakers
and economists say that the focus for now should be on providing relief to
workers and to companies so that the economy can bounce back.
You can't put this in the framework of other recessions.
This is hitting us on so many different sides and could metastasize into
something that is literally viral for the economy as well, and that the
whole point is to survive this and come out healthy on the other side.