Economic Decline Will be Sharper Than in 2008

Unless the COVID-19 pandemic can be contained quickly, the economic toll on America - and the world - will be catastrophic as businesses close and many Americans find themselves jobless and with no income.  What is stunning is the speed of the economic reversal which economists say will make the 2008 financial crisis pale in comparison.  We are in truly uncharted waters yet some are criticizing the current stimulus plan in Congress as too generous while others are saying it needs to be larger and more targeted to those who have lost or at risk of losing their jobs.  A piece in the Washington Post looks at the current troubling situation. Here are article highlights:

The U.S. economy is deteriorating more quickly than was expected just days ago as extraordinary measures designed to curb the coronavirus keep 84 million Americans penned in their homes and cause the near-total shutdown of most businesses.

In a single 24-hour period, governors of three of the largest states — California, New York and Illinois — ordered residents to stay home except to buy food and medicine, while the governor of Pennsylvania ordered the closure of nonessential businesses.

The resulting economic meltdown, which is sending several million workers streaming into the unemployment line, is outpacing the federal government’s efforts to respond. As the Senate on Friday raced to complete work on a financial rescue package, the White House and key lawmakers were dramatically expanding its scope, pushing the legislation far beyond the original $1 trillion price tag.

With each day, an unprecedented stoppage gathers force as restaurants, movie theaters, sports arenas and offices close to shield themselves from the disease. Already, it is clear that the initial economic decline will be sharper and more painful than during the 2008 financial crisis.

Next week, the Labor Department will likely report that roughly 3 million Americans have filed first-time claims for unemployment assistance, more than four times the record high set in the depths of the 1982 recession, according to Bank of America Merrill Lynch. That is just the start of a surge that could send the jobless rate spiking to 20 percent from today’s 3.5 percent, a JPMorgan Chase economist told clients on a conference call Friday.

“We are looking at something quite grave,” said economist Janet L. Yellen, the former Federal Reserve chair. “If businesses suffer such serious losses and are forced to fire workers and have their firms go into bankruptcy, it may not be easy to pull out of that.” Most economists expect the economy to begin climbing out of its deep hole in the second half of this year. But those forecasts depend upon the pandemic being brought under control and the United States and other governments enacting policies that prevent lasting harm to factories and financial arteries. Even if all that happens, the economy will be smaller at the end of this year than it was at the beginning, according to Bridgewater, Goldman and JPMorgan. Individual workers and their families — many only recently recovered from the economic cataclysm of 2008 and 2009 — are already feeling the effects. The unexpected economic shock has put millions of Americans living on the precipice of ruin. In a Fed survey last year, 39 percent of Americans said they would be unable to handle an unexpected $400 expense. The sudden turnabout in U.S. economic fortunes is without historic parallel. As 2020 began, the U.S. economy had been expanding without interruption since the middle of 2009. The jobless rate was near a half-century low, and the stock market was headed toward a record high.

Now, the economy is screeching to a halt and the stock market is in free fall. On Thursday, the Big Three automakers said they would close their factories through March 30. Real estate agents have canceled open houses. Marriott, the largest hotel company in the world, is closing its hotels and furloughing thousands of workers. . . . . On average, hotel revenue is down 75 percent, which requires draconian retrenchment.

“A stunning reversal of fortune for the best economy in history to the worst economy in history in not even two months. The fastest recession in history. With no one spending a dime, it will stay that way a long, long time.”

For small-business owners, there is palpable fear of bankruptcy.

Let's hope two weeks of social distancing reins in the virus' spread and that normalcy can be restored.