Bank of America’s top U.S. economist on Thursday warned that the country is now in a recession in a note to investors.
CNBC reported that Michelle Meyer wrote in a letter to the company’s clients that the U.S. economy is in a “deep plunge” brought on by the global coronavirus outbreak, which has sickened thousands across the country and more than 200,000 globally.
“We are officially declaring that the economy has fallen into a recession … joining the rest of the world, and it is a deep plunge,” Meyer reportedly wrote. “Jobs will be lost, wealth will be destroyed and confidence depressed.”
Meyer did add that while “the decline is severe, we believe it will be fairly short lived.”
The solution to the economic slowdown, she continued, was aggressive economic stimulus action taken in the next few weeks.
The macroeconomic consequences are if anything more dire. A typical recession gains steam because all workers reduce their spending: Some because they’ve lost their jobs, others because they expect to, others who are worried they might. This effect ripples through the economy.
The first month of major job losses during the Great Recession was February 2008, when the economy shed 906,000 jobs. The effect rippled throughout 2009, and during the entirety of the Great Recession about 8.5 million jobs were lost. A similar multiplier would place total job losses from the current recession at … 37 million.
Again, using back-of-the-envelope math, that implies a rise in the unemployment rate to about 27% — even higher than the 20% Treasury Secretary Steven Mnuchin has warned as possible. It would exceed the highest unemployment on record, 24.9%, set during the Great Depression. To repeat: These are rough estimates based on early data.
Moreover, the coronavirus recession is, structurally speaking, unlike any that have come before it. Many of the measures the public is being asked to take are voluntary, so it is possible that economy could bounce back rapidly once they are lifted. On the other hand, because social distancing will have to continue for months, it could be that the initial shock is compounded several times over.
In either case, the government and the public should be prepared for a dramatic and uncertain economy.
Here are the initial wave of unemployment claims that rocked 11 state governments in recent days:
Pennsylvania: Around 50,000 claims were filed on Monday, and the Tuesday figure surpassed that. That’s compared to 14,000 during the first week of March, according to the Pittsburgh Post-Gazette.
Ohio: There were 11,995 unemployment claims on Sunday and 36,645 on Monday – compared to 545 the Sunday before, the Columbus Dispatch reported. The Sunday figure alone is around the average number of claims that Ohio’s labor agency gets in a month.
Minnesota: 31,000 people filed for unemployment Monday and Tuesday, per the Minnesota Star Tribune – a rate that’s 10x more compared to the same week last year.
Connecticut: The state saw 30,000 unemployment claims from Friday to Tuesday, according to the Hartford Courant. On average, there are usually around 3,000 to 3,500 unemployment claims each week.
New York: 21,000 people called to file for unemployment with the state’s Department of Labor by noon on Tuesday, compared to 2,000 the same day last week, per an agency press release.
Massachusetts: 19,884 people filed unemployment benefits on Monday alone, compared with 17,382 people for all of February, per WCVB News.
Rhode Island: 17,779 unemployment claims were filed in the last eight days, compared to 10 just the previous week, per WRPI News.
New Jersey: 15,000 people sought out unemployment benefits on Monday, which crashed the state’s website, WHYY reported.
Texas: Around 16,000 people sought unemployment benefits last week, compared to 4,500 only a week ago. It’s a large 40% jump, the Houston Chronicle reported.
Kentucky: 9,000 people filed for unemployment on Tuesday along, much higher than the 2,000 who usually seek job loss benefits on a given week, per the Lexington Herald-Leader.
Colorado: 3,900 claims filed on Monday, followed by 6,800 on only Tuesday morning, Denver 7 News reported. Last Monday, the state only had 400 people file for benefits.
‘Best-case scenario is vaccine in 12 or 18 months and then lives go back to normal’…
As Americans watch the value of their retirement funds collapse, it is no surprise the spring housing market is about to crater. Home sales could fall by 35% annually this spring, compared with the last quarter of 2019, according to new analysis by Capital Economics.
The credit market is in free fall
— A.Urban (@AlessioUrban) March 19, 2020
Early US PMIs aren't encouraging. Empire plunged earlier this week and now Philly. My guess at this stage, is we are probably looking at an ISM Manufacturing number of around 40. The GFC low was 34.5 pic.twitter.com/RZnhV6kr3B
— Julian Brigden (@JulianMI2) March 19, 2020
🇺🇸Restaurant Traffic sinks @TradersCom @EconGlobal @AlessioUrban @MI_Investments @SpeculaThor @bocajoes @trading24h @LordPolemos @ARCDEPOT @Rafael60980545 @2020ninewaves @mah1mah1 @7LongGame @wheeliedealer @siddiqui71 @rsroc2 @jraixelamarkets @rober85348744 @josep_codina @paibad pic.twitter.com/oOf90djGzb
— Antonio Pérez Algás (@apanalis) March 19, 2020
12.3 million Americans work in restaurants and bars
— GreekFire23 (@GreekFire23) March 19, 2020
— Jennifer Ablan (@jennablan) March 19, 2020
Real-time data for March currently suggest ISM's Composite PMI will print 44, down 6 handles from February pic.twitter.com/0RgjUhlZZX
— Not Jim Cramer (@Not_Jim_Cramer) March 19, 2020