Coronavirus causes recession in the United States

Coronavirus causes recession in the United States

access_time2020-03-26 09:30:12

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The coronavirus  crisis has sent the economy into a tailspin in the United States and around the globe. The restaurant industry has ground to a halt. So have air travel auto manufacturing , hotels, gyms, and cruise lines. The stock market has posted enormous losses  and wild daily swings, to the point that trading has sometimes been paused altogether , and the price of oil has plummeted. Layoffs across the country are taking place in waves. We’re producing less, spending less, and consuming less.

What we’re in now is different from other recent downturns. It’s pegged to the global health crisis caused by the coronavirus pandemic, and whatever levers the Federal Reserve, Congress, the White House, and state and local governments pull can only do so much. Government officials made the decision that shutting down businesses and pausing a lot of economic activity is worth saving lives. As Dartmouth College economist Bruce Sacerdote put it, “It’s all about getting the damn virus under control.”

A recession generally means that the economy, instead of growing, contracts.

Traditionally, a recession has been defined as two consecutive quarters of negative GDP growth. The National Bureau of Economic Research has a broader definition : “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.” A group within the NBER, the Business Cycle Dating Committee, is the body that officially “calls” when a recession starts and ends. It could do so once two quarters of data are in, it could do so now, or it could never do so at all. Data is often a lagging indicator, but given the state of affairs, we don’t really need to wait to figure out what’s happening.

The data and estimates we do have are already staggering. Restaurant occupancy has plummeted  across multiple states and cities, and airlines are slashing flights .

Weekly jobless claims rose to 281,000  the week ending on March 14, and Goldman Sachs estimates the number will climb to 2.25 million from March 15 to 21. Various  states  have seen unemployment insurance phone lines jammed as recently laid-off workers call in. The unemployment rate is widely expected to spike from the historically low 3.5 percent rate it was at in February.

Analyst forecasts for GDP growth have become increasingly dire in recent days as the gravity of the situation sets in. JPMorgan estimated  the economy could shrink by 14 percent in the second quarter. Goldman forecast a decline of 24 percent. Both predicted a strong bounce-back in the third and fourth quarters, largely on the assumption that the virus will be under control by then, which is far from assured.


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