WASHINGTON (AP) — No one knows how long it will last or how much it will hurt. But the U.S. economy is either sliding into a recession for the first time since 2009 or is already in one — a sudden victim of the coronavirus outbreak.
The vast changes deemed necessary to defeat the virus — people and companies no longer engaging with each other — are bringing everyday business to a halt and likely delivering a death blow to the longest economic expansion on record.
The interplay between the outbreak and the steps meant to vanquish it reveals a cruel paradox: The faster and more painfully that ordinary economic life shuts down, the faster the health crisis can be solved and the faster people and businesses may gain the confidence to return to normal life. Conversely, a prolonged period of fighting the virus would delay an economic rebound and imperil many small businesses.
Much, too, will depend on how swiftly and aggressively the Federal Reserve, Congress and the Trump administration deliver financial aid to tens of millions of economic victims — from hourly workers with no more income to suddenly furloughed employees to businesses with loans to pay but no customers. Solving the health crisis by shutting down the economy, though, will have to come first.
"The more rapidly you want to contain the virus, then the more severe the lockdown has to be and the more severe the disruption to economic activity is,'' said Gregory Daco, chief U.S. economist at Oxford Economics. "The hope is, the more severe the lockdown, the sharper the rebound will be.''
The "Lockdown Paradox," he calls it.
In the near term, at least, Daco foresees excruciating economic pain: He expects the American economy to shrink at a staggering 12% annual rate in the April-June quarter. That would be the most dismal quarter on record dating back to 1947. After a second-half rebound, Daco thinks the economy will post zero growth for 2020 as a whole.
Experts say the economy has sunk with stunning speed. And the United States is hardly alone: By all estimations, Europe is enduring its own recession, accelerated by the coronavirus’ epicenter in Italy.
In the United States, waves of layoffs seem inevitable, especially in industries most vulnerable to an economic standstill: Travel, entertainment, hotels, restaurants, retail stores — the heart of the service sector, which makes up most of the U.S. economy. Unemployment is sure to rise, perhaps sharply, in the months ahead.
"We are already in recession,'' said Robin Brooks, chief economist at the Institute of International Finance, an association of financial companies.
Brooks reckons that the U.S. gross domestic product — the broadest gauge of economic output — will fall at a 0.2% annual rate in the January-March quarter and then by 3.6% in the April-June period.
Even President Trump, ever celebratory of the economy's performance on his watch, conceded this week that the U.S. "may be'' heading toward a downturn.
Statistics that will capture the economic damage from the virus and the efforts to contain it are just beginning to surface. For now, Brooks fears "all the things we don't see: The social distancing, the quarantining and the uncertainty aren't in the hard data yet.''
The early evidence is sobering: The Federal Reserve Bank of New York reported Monday that manufacturing activity in New York state plunged this month to the lowest level since the Great Recession year of 2009.