Economy heads into the unknown
The U.S. economy is facing a plunge into uncharted waters.
Economists say there is little doubt that the nation is headed into a recession because of the coronavirus pandemic, with businesses shutting down and Americans being shut in. But it is harder to foresee the bottom and how long it will take to climb back.
Greg Daco, chief U.S. economist at Oxford Economics, said the economy is assured of a recession – at least two consecutive quarters of economic decline – with output falling 0.4% in the first quarter and 12% in the second. That would be the biggest quarterly contraction on record, but Goldman Sachs upped the ante Friday, saying it expected a 24% drop in the second quarter.
“This is not just a blip,” Daco said of the outlook. “We’ve never experienced something like this.”
The abruptness of the descent – and the nearlockdown of major cities – is unheard of in advanced economies, more akin to wartime privation than to the downturn that accompanied the financial crisis more than a decade ago or even the Great Depression.
“Even during previous recessions,” noted Ellen
Zentner, chief U.S. economist at Morgan Stanley,”no one’s been told you can’t go outside or you can’t gather.”
Smaller companies will be hit harder than large ones because of their limited access to credit and less cash in the bank. “There will be a swath of small businesses that simply won’t be able to survive this,” Zentner added.
The result is an economy that has gone from full speed ahead in January to a full-on freeze. Economists have had to update their models daily as the pandemic throttles work, commerce and travel.
“Economic data in the near future will be not just bad but unrecognizable,” Credit Suisse said in a note Friday.
On Thursday, the Labor Department reported that initial jobless claims jumped 30% the previous week, to 281,000, the highest level since the aftermath of a hurricane in
2017. But even that number looks tiny next to the number of new claims that Goldman Sachs foresees in the next weekly report: 2.25 million.