Recession panel could make swift call

REFRAINS OF 1980

ATLANTA officially will determine whether the U.S. economic slump sparked by the coronavirus qualifies as a recession is watching data and could announce prior to the November presidential election that the country’s longest-ever expansion is over.

A short but substantial drop in activity could be classified as a recession, said Stanford University professor Robert Hall, head of the National Bureau of Economic Research’s business cycle dating committee. The 1980 recession was “short but sharp” — lasting just six months and required such a decision. “We decided it did,” Hall said.

U.S. President Donald Trump said Monday that the economy “may be” headed into a recession, taking a more downbeat tone on the situation than before. “This is a bad one,” he said of the virus.

Federal Reserve chairman Jerome Powell was more cautious, telling reporters on Sunday after slashing rates to nearly zero that growth would be weak in the second quarter and it was hard to say when it would recover.

The question will likely have political significance for the president, who has repeatedly touted a strong U.S. economy, with a half-century low in unemployment and rising stock prices, as a prime rationale for his re-election.

While Hall as chairman declined to comment on his view of the outlook, another committee member, Harvard University economist James Stock, said he agreed with private forecasters that the U.S. is starting to have “a very sharp reduction in demand.”

The decline might be similar to 1990, when Iraq’s invasion of Kuwait that August resulted in a temporary oilprice spike and a great deal of uncertainty. That led to hiring freezes in the U.S. and reduced consumption, tipping an already weak economy into recession, Stock said.

“Here the consumption cutback is because of the direct effects of telecommuting — travel, hotels, malls, ground transport, et cetera — but I’d think that uncertainty plays into things now as then,” he said. “From my vantage point it is operating, at least for now, as an old-fashioned demand shock.”

Goldman Sachs economists on Sunday projected the U.S. economy would grow zero per cent in the first quarter, plunge by five per cent in the second, then rebound starting in the third quarter. That kind of outcome would force the committee to determine whether a temporary decline, if steep enough, would count as an official downturn.