Investment banks currently have a vested interest in overstating the potential financial ramifications of the coronavirus, as investors prefer to know the worst likely outcome of a crisis now and overperform expectations later. By contrast, the modeling of the nonpartisan Congressional Budget Office relies on laws as written and typically conservative modeling. For instance, the CBO, as usual, assumes that Congress won’t pass a myriad of more discretionary spending packages and that social distancing declines by 75% during the second half of this year, a highly optimistic hope given the odds of a second surge in the pandemic once cold weather returns.
And even so, the picture the CBO paints is about as bad as the forecasts of Goldman Sachs and JP Morgan.
In the second quarter of the year, the CBO estimates we’ll suffer a GDP contraction of 11.8%, or a staggering 36.9% on an annualized basis. That’s worse than Goldman’s estimate of a 24% loss and JPMorgan’s 25% drop forecast. What’s more, even though the CBO’s recovery projections are better than Goldman’s and JPMorgan’s, its unemployment estimates are far more disastrous.
JPMorgan surmises that our unemployment rate will peak at 8.5% and Goldman guesses it apexes at 9%. After spending the better part of a year hovering around a half-century low, our unemployment rate will peak at 16% in the third quarter of the year and remain at 10% next year, according to the CBO’s projections.
And mind you, the CBO’s estimates already fit more realistically with current job claims, which already indicate that about 1 in 6 workers has claimed joblessness.
As the last few months have proven, GDP isn’t some abstract worry of white-collar consultants. It’s a culmination of tangible and lifesaving things, including everything from the intellectual property that produces crucial medicines and technology, to the food and cleaning and hygiene supplies we need every day. It’s excellent news that the CBO still thinks that we’ll rebound from a 5.6% GDP loss in 2020 to recoup half that loss the next year. But how minimal will that gain be if our unemployment rate remains three times what it was last month well into 2021? And especially when our national debt is now slated to outpace our GDP this year, rendering further spending packages even more financially risky?
A V-shaped recovery this is not, and the longer the shutdown persists, the more businesses will be forced to close their doors for good. So whenever this is over, more and more will find themselves without a livelihood.
