Economists are now predicting that the United States is heading toward a recession if we haven’t already entered it. The question now is how quickly our economy will bounce back.
Our economy hasn’t seen an economic slowdown of this magnitude since the Great Depression. Indeed, JPMorgan, the U.S.’s biggest bank, is predicting a 14% decline in the gross domestic product next quarter, which is almost double the size of the 2008 recession’s collapse. Unemployment will double by the end of the year, according to JPMorgan’s estimates (which tend to be more cynical than other predictions), and the overall economy could shrink by 0.2%.
It’s difficult to make sense of these numbers. But it’s clear that people are losing their jobs as the restaurants and stores they work for close their doors. Some of those businesses will never reopen. The auto plants in Michigan are also temporarily closing, leaving thousands unemployed. Hopefully, it’s just for now, but many of those workers will not be rehired.
Back in 2008, I was young enough not to understand the magnitude of what hit the economy but still old enough to recognize the uncertainty that crippled my community. My parents worried that our house had lost its value. My neighbors, many of whom worked for one of the Big Three automakers, lost their jobs. My dad sat us down and told us we were one of the lucky ones.
I feel that same uncertainty now. Yet all of the numbers suggest this will be worse, much worse. The coronavirus outbreak has effectively halted global commerce, spurring a “deep plunge,” as the Bank of America’s top economist, Michelle Meyer, told her company’s clients. More than $4 of every $10 in consumer spending is used in “social situations,” such as eating out, movie theaters, and the like, according to Oxford Economics. Because of social distancing, that money is no longer being spent.
That doesn’t mean it’s time to panic. The federal government is doing all it can to preserve economic stability, and its aggressive economic stimulus will surely help offset the worst of it. “The decline is severe,” Meyer said, “but we believe it will be fairly short-lived.”
The good news is that our economy is resilient, flexible, and well-prepared. Our unemployment just hit an all-time low, our GDP growth has been excellent, and right now, many businesses have a monetary cushion on which they can rely.
But we must be prepared. The rates of production will not magically bounce back overnight. The supply chain will not be able to just pick up where it left off. China’s economy could shrink up to 40%, according to JPMorgan. The effects of this plummet will reverberate across the globe.
Domestically, state governments are cutting off trade and tourism, forcing businesses to close, and advising customers to stay away from the ones that are open. This shutdown will have long-term costs for which there are no immediate solutions.
All of this suggests there will be a recession. It will be followed by a recovery, but when? Some economists predict recovery will begin later this year. Others aren’t that optimistic.
“If a normalization in activity from depressed levels takes hold midyear alongside building policy stimulus, the depth of the current downturn can be seen as a springboard for a strong snapback in growth,” JPMorgan’s head of economic research, Bruce Kasman, said. “However, there is a significant risk that the virus outbreak persists and activity remains restricted for a longer time.”
What we do know is this: things will change — some for the better, some for the worse. But it’s important to remember that all of this is necessary. We must deal with this virus appropriately, and that means making social and economic sacrifices. The economy will still be there when all of this is over. It might be much lower. But it will come alive again. It always does.
