WASHINGTON — There is a high and growing likelihood that the United States enters a recession in 2020. In fact, it may have already started.
America is shutting down at lightning speed as schools and businesses instruct people to go home and wait the coronavirus out. That is having a massive ripple effect on the economy as people curtail spending on about everything but toilet paper, pasta and hand sanitizer.
The pace at which all of this is happening is unprecedented. In 2008, it took 274 days for the stock market to enter the dreaded “bear market” territory. It took just 24 days to enter a bear market now. JPMorgan just changed its forecast to predict a recession in the first half of the year (a recession is two quarters of negative growth).
Economists and big Wall Street investors nearly all agree the nation has to do whatever it takes to get the health crisis under control, even if that means putting the economy into a recession. The hope was that a downturn would be short-lived. Until only a few days ago, most economists were talking about a “V” or “U” shaped situation with a quick drop this spring that would be followed by a massive rebound this summer as Americans cooped up at home do a mass rush back into “normal” life.
But now there is concern this will look more like an “L,” where stocks tank, the economy tanks and it is a slow and painful recovery. In other words, even if the health crisis is tamed, the economic crisis could last longer.
Much of this hinges on how long the economy has to be in timeout mode. As a small-business owner in Michigan, who did not want to be named for fear of worrying his customers, said by text: “My sales are down by half. I won’t survive three months like this.”
The same is true for workers. Layoffs have already started in businesses as diverse as ports, hotels and bakeries. Many people can eek by for a few weeks, especially with some government and nonprofit aid to expand unemployment benefits, sick pay and food stamps, but it is a different story if the situation lasts for months. People start missing credit card, car and home payments because the government aid typically is not as much as they had been making. Then they start losing their car or home.
“The U.S. economy is in a tailspin,” writes economist Claudia Sahm on her blog. “This month and in the months to come, the incomes of families across the country will fall, making it impossible for some to make ends meet. As a result, spending will fall, hitting the bottom line hard at restaurants, car dealerships, construction companies, and many more.”
Fears about the economic impact heightened Friday after Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, said on ABC’s “Good Morning America” that it could take “eight weeks or more” of shutdowns and working from home to get COVID-19 controlled.
What makes the economic situation so complicated is that uncertainty will remain high until the health situation is under control. So the usual playbook of sending Americans money or cutting their taxes or lowering their borrowing costs does not help if they literally cannot — or do not want — to leave their homes.
On top of that, the list of industries that need help is growing rapidly, an eerily reminiscent situation of 2008. Initially the coronavirus was mainly hurting the travel sector — airlines, hotels and cruise lines — and West Coast shipping and ports that are tied heavily to China. But now the pain is being felt across most of the service sector, which accounts for over 110 million jobs, excluding health care.
“Consumption is going to fall like a stone in March. You aren’t going to get that back,” said Constance Hunter, chief economist at KPMG. She is predicting a 30% drop in consumption this month alone, a huge blow for restaurants, event venues and more.
“You need to help the individuals and businesses most severely impacted. Otherwise, it won’t be a V-shaped impact with a bounce back,” Hunter said.
A third blow is the oil price war launched by Saudi Arabia and Russia. Oil is now trading at barely above $30 a barrel, a level most U.S. firms cannot survive on for long. Massive layoffs are likely in energy in the coming weeks, another blow that might not bounce back.
Policymakers are facing a whack-a-mole situation as they try to figure out which businesses and Americans most need support. So much of the economy is interconnected. If energy flounders, manufacturing and business investment are almost certain to sink with it, akin to what happened in 2015 and early 2016.