The dreaded ‘W’
Some warn a hasty reopening could expose US economy to relapse
WASHINGTON — When the coronavirus erupted in the United States, it triggered quarantines, travel curbs and business shutdowns. Many economists predicted a V-shaped journey for the economy: A sharp drop, then a quick bounce-back as the virus faded and the economy regained health.
Others envisioned a slower, U-shaped course.
Now, as President Donald Trump and many Republicans press to reopen the economy, some experts see an ominous risk: That a too-hasty relaxation of social distancing could ignite a resurgence of COVID-19 cases by fall, sending the economy back into lockdown. The result: a W-shaped disaster in which a tentative recovery would sink back into a “double-dip” recession before rebounding eventually.
“A W-shaped recovery is a distinct possibility,” said Yongseok Shin, an economist at Washington University in St. Louis and a research fellow at the Federal Reserve Bank of St. Louis. “Unless the reopening is carefully managed with extensive testing and voluntary social distancing, infections will rapidly rise in many localities.
“People will then hunker down for fear of infection, and local governments will re-impose lockdowns, quashing any economic recovery we will have had to that point.’’
A double-dip recession would significantly heighten the risks for an already debilitated U.S. economy. Congress has provided roughly $3 trillion in aid — by far its largest rescue ever — to help households and companies survive the next few months. That short-term aid, though, assumes any recovery will last. If a second downturn were to flare up, it’s far from clear that Congress would be ready to offer trillions more to enable businesses to survive yet another round of months-long shutdowns.
Nor do many companies have the cash reserves to cushion against a second recession. And just as threatening, a double-tip downturn would sap the confidence of individuals and businesses that is essential to an economic bounce-back. If consumers don’t trust that a recovery will last, many won’t resume spending, and the economy would struggle to rebound.
Federal Reserve Chair Jerome Powell has urged caution in reopening the economy. Powell has warned against taking “too much risk of second and
third waves’’ of the virus.
For now, the economy is essentially in free-fall. The unemployment rate surged to 14.7%. The gross domestic product — the broadest measure of output — shrank at a 4.8% annual rate from January through March and is expected to post an astounding 40% annual collapse in the current quarter. That would be, by far, the worst on record dating to 1947.
The Associated Press reported last week that many U.S. governors are disregarding White House guidelines. Seventeen states didn’t meet a key benchmark set by the White House for beginning to reopen businesses: A 14-day downward trajectory in new cases or positive test rates.
Texas’ Republican lieutenant governor, Dan Patrick, has gone so far as to suggest that restarting the economy might be worth the risk of some additional deaths.
“There are more important things than living,’’ Patrick said in an interview with Fox News. “I don’t want to die, nobody wants to die, but man, we got to take some risks and get back in the game and get this country back up and running.”