The National Bureau of Economic Research or NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” With projections and economic data now showing a downturn, the U.S. economy is about to enter a “Greater Recession” than what was experienced during 2008 and 2009.
Coronavirus and response or non-response
While President Trump didn’t create the coronavirus, his Administration’s slow response has probably led to a greater impact on the economy than if policies had been put in place and medical equipment had been ordered earlier. Other countries that implemented more readily available testing have avoided the severe restrictions and number of deaths that have occurred in the U.S.
From January 18, when it was reported that he received his first substantial briefing on the coronavirus, through February 25 when the Director of the National Center for Immunization and Respiratory Diseases said, “we need to be preparing for significant disruption in our lives”, people ranging from the Health and Human Services Secretary Alex Azar and economic advisor Peter Navarro told Trump or wrote memos that there could be a pandemic.
During this timeframe through March 8 Trump played golf five times and held seven campaign rallies. He said that the coronavirus was “totally under control” and that “the 15 cases within a couple of days is going to be down to close to zero.” He stated, “It’s going to disappear. One day, it’s like a miracle, it will disappear” and “I don’t take responsibility at all.”
It is unfortunate that social distancing wasn’t implemented earlier. The following video from the Ohio Department of Health is a great visualization on why social distancing works and if implemented earlier would have led to a much better situation than what is currently occurring.
Multiple economists are forecasting negative growth in the March quarter
The first report from the Bureau of Economic Analysis for March quarter’s GDP is scheduled to be released on Wednesday, April 29. While NBER doesn’t require two quarters of negative GDP growth, numerous economists are forecasting just that.
While GDP Now is not an official forecast from the Atlanta Fed, its graph contains projections from the Blue Chip Economic Indicators and Blue Chip Financial Forecasts. As you will see below these group have a wide range of projections with an average of the top and bottom 10 estimates coming in at a negative 4% for the March quarter.
Since the severe restrictions placed on the economy only started to bite in March it is a safe assumption that the June quarter’s GDP report will be worse than March’s.
Greater decline in retail sales
The U.S. Census Bureau estimates that retail and food services sales fell 8.7% in March vs. expectations that ranged from negative 7% to 8%. Motor vehicle sales were a huge drag and when food services are excluded the drop was 6.2%, as seen in the chart below. The 6.2% decline is much worse than the negative 4.3% in March 2008, and it would not be surprising to see an even worse report in the next month or two.
Greater decline in industrial production
The Federal Reserve estimates that industrial production fell 5.4% in March, which was the largest decline since February 1946, after World War II ended. This drop is especially worrisome since it shows that not just services but the manufacturing segment of the economy is also being impacted.
Greater decline in the Empire State Manufacturing Survey
The huge decline in the New York Fed’s Empire State Manufacturing Survey shows how large the virus’ impact can be on a geography that is being hit hard. The survey showed that, “The headline general business conditions index plummeted fifty-seven points to -78.2, its lowest level in the history of the survey—by a wide margin.”
Greater decline in unemployment claims
All of these weak economic reports cumulated in last Thursday’s fourth week of multi-million unemployment claims compared to the worst week of the Great Recession’s 665,000. The coronavirus has driven the four-week total over 22 million, and unfortunately, the job losses and unemployment claims probably won’t fall to zero or even close to it next week. Above average claims will probably persist for the next few weeks and maybe even a month or two.