economic recession – dwkcommentaries

On April 29, the U.S. Commerce Department reported that the U.S. Gross Domestic Product (GDP) for the first quarter of the year declined at a 4.8% annual rate. “That is the first decline since 2014, and the worst quarterly contraction since the country was in a deep recession more than a decade ago.” [1]

Moreover, “Economists widely expect the Commerce Department to revise the first quarter figure even lower as more data becomes available. Goldman Sachs says the true decline was likely over 8 percent. JPMorgan Chase says it was likely over 11 percent.”

Most of this quarter that ended on March 31 “came before the coronavirus pandemic forced widespread shutdowns and layoffs. Economists expect figures from the current quarter to show G.D.P. contracting at an annual rate of 30 percent or more.” As the Wall Street Journal stated, this number “indicated the economy is sliding toward a near-certain recession and signaled the end of the longest economic expansion on record.”

“Many economists [already] have said the pandemic has put the U.S. in a recession. The number of American workers filing new claims for jobless benefits in recent weeks, at more than 26 million, points to an unprecedented wave of layoffs, and readings on consumer and business activity are showing record declines.”

Conclusion

These numbers confirm what everyone in the U.S. (and the rest of the world) already knows. The pandemic has caused and will continue to cause enormous economic pain in the U.S. and around the world.

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[1] The U.S. economy contracted by the most since the great recession,,N.Y. Times (April 29, 2020); Torry, U.S. Economy Shrank at 4.8% Pace in first Quarter, W.S.J. (April 29, 2020); Long, U.S. economy shrank 4.8 percent in first quarter, the biggest decline since the Great Recession, Wash. Post (April 29, 2020).

The COVID-19 pandemic has caused a global economic recession (if not depression). Many people have lost their jobs. Stores are closing. Governments are facing huge reductions in tax collections and thus big reductions in expenditures or large deficits.

In the U.S. alone, as of April 18, 33 million people recently have filed applications for unemployment insurance benefits. Moreover, “Some economists expect a fresh surge of claims in future weeks as workers who were previously unable to file because of backlogged state systems are counted, and as states begin to accept applications from people who are newly eligible.” Economists believe that the national unemployment rate for April could reach 20%.[1]

On April 24, the U.S. Congressional Budget Office forecasted a $3.7 trillion federal government deficit, a 5.6% U.S. economic contraction and an unemployment rate of nearly 12% by year’s end.[2]

“Laid-off workers need money quickly so that they can continue to pay rent, and credit card bills and for groceries. If they can’t, the hole that the larger economy has fallen into ‘gets deeper and deeper, and more difficult to crawl out of.’” As a result, many banks are confronting defaults on loans and mortgages.

“Pain is everywhere, but it is most widespread among the most vulnerable. For example, 52 percent of low-income households — below $37,500 a year for a family of three — said someone in the household had lost a job because of the coronavirus, compared with 32 percent of upper-income ones (with earnings over $112,600) [while] forty-two percent of families in the middle have been affected as well. Those without a college education have taken a disproportionate hit, as have Hispanics and African-Americans.”

J.P. Morgan “sees GDP in the U.S. falling at an annualized rate of 40% in the three months through June, the eurozone tumbling 45%, with the U.K. economy expected to contract by 59.3% and Japan by 35%. Some forecasts are for a relatively quick rebound, though the outlook depends on how quickly and thoroughly the coronavirus can be contained.”[3]

On April 24, President Trump signed into law for $484 billion of relief for small businesses and hospitals and for expansion of coronavirus testing capacity.[4]

Here is local bit of good news. On April 27, the State of Minnesota will be allowing the opening of manufacturers and offices that don’t have face-to-face interaction with clients and weren’t deemed critical industries that were exempt from the stay-at-home order. Roughly 20,000 companies in this category with 100,000 employees now have the option to reopen if they complete and publicize plans to maintain social distancing, worker hygiene and workspace cleanliness. On the other hand, HealthPartners, a Minnesota-based nonprofit group operating seven hospitals, dozens of clinics and a large health insurance business, announced that it was furloughing 2,600 workers due to suspension of nonemergency surgeries.[5]

Bill Gates, the wealthy co-founder of Microsoft and now co-chair of the Bill & Melinda Gates Foundation, has said that the U.S. and other countries would be aided in returning to normal if we were able to make the following innovations. Create coronavirus tests that are self-administered. Adopt consistent standards about who gets tested. Implement consistent, reliable means for contact tracing. Voluntary adoption of digital tools that help one remember where you have been and whom you have contacted. Develop drugs for treating the virus. Develop a vaccine and a fair, effective way for its distribution and use.[6]

Conclusion

While I worry about all of the unemployed, their families and the general condition of the U.S. (and global) economies, I am grateful that I am retired and thus not personally involved in these wrenching struggles.

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[1] Chaney & Guilford, Millions of U.S. Workers Filed for Unemployment Benefits Last Week, W.S.J. (April 23, 2020); Cohen, Jobless Numbers Are ‘Eye-Watering’ but Understate the Crisis, N.Y. Times (April 23, 2020); Siegel & Van Dam, 4.4 million Americans sought jobless benefits last week, as economic pain continued across the United States, Wash. Post (April 23, 2020); Rugaber, 26 million have sought US jobless aid since virus hit, StarTribune (April 23, 2020); Taylor, Coronavirus relief pushing US deficits to staggering heights, Assoc. Press (April 24, 2020); Kiernan, Coronavirus Projected to Trigger Worst Economic Downturn Since 1940s, W.S.J. (April 24, 2020).

[2] The federal budget will be nearly $4 trillion in 2020, the C.B.O. says, N.Y. Times (April 24, 2020).

[3] Hannon & Sparshott, Global Economy Hit by Record Collapse of Business Activity, W.S.J.(April 23,2020).

[4] Duehren & Hughes, House Approves $484 Billion bill to Aid Small Business, Hospitals, W.S>J. (April 23, 2020).

[5] Olson & Horwatt, Restrictions could be lifted on up to 100,000 Minnesota workers by Monday, StarTribune (April 24, 2020); Snowbeck, COVID-19 fallout: HealthPartners to furlough 2,600 workers, StarTribune (April 24, 2020).

[6] Gates, Here are the innovations we need to reopen the economy, Wash. Post (April 23, 2020)economic recession