With unprecedented force and speed, a global recession is likely taking hold
The United States is suffering the most abrupt and widespread cessation of economic activity in its history, hurtling toward a recession that could mean lost jobs, income and wealth for millions of Americans.
Across the country, consumer spending — which supports 70 percent of the economy — is grinding to a halt as fears of the escalating coronavirus pandemic keep people from stores, restaurants, movie theaters and workplaces.
The rapid national shutdown already has caused layoffs and reverberated on Wall Street, driving stocks into their first bear market in 11 years. Amid panic selling, unusual strains have appeared in less visible market niches that are critical to the ability of businesses to operate normally.
For millions of workers, consumers and investors, the economy’s sudden stop comes as memories of the 2008 global financial crisis remain fresh. Less than 12 years ago, the economy sank into a painful recession after risky Wall Street investments tied to real estate went sour. The number of jobless workers more than doubled in the aftermath while the stock market lost more than half its value.
Some veterans of that tailspin — the worst since the Great Depression — say today’s epidemic is hammering the economy in complex ways that could prove even more difficult to combat.
“The problem is everyone in America is cutting back their consumption,” said Jason Furman, who led the Council of Economic Advisers during the Obama administration. “A lot of sectors are being hit, especially the services sector. A lot of income and spending is being reduced. That’s just an enormous shock to the economy.”
The economy has weathered numerous painful recessions and previous shocks, including natural disasters and terrorist attacks. But what’s different this time is the speed of decline and the comprehensive economic hit caused by an unpredictable health scare that interferes with Americans’ ability to produce and consume.
By the end of this month, the global economy probably will have shrunk by 1.2 percent — “not far short of the 1.6 percent drop in world output seen at the depth of the global final crisis” in the fourth quarter of 2008, according to Capital Economics in London. As the United States reels, Europe and Japan are also probably in recession.
“This is like a hurricane happening everywhere simultaneously for months and months on end,” Furman said. [Continue reading…]