Bank of America warned investors Thursday that the longest U.S. economic expansion on record is now over and that the country has entered a recession amid the widening outbreak of coronavirus, according to the news website The Hill, citing a report by CNBC.
It was at least the second time this week that a key indicator signaled a historic economic decline due to the crisis.
The last time the nation saw a recession was during the financial crisis of 2009.
The economic outlook
In a letter to the bank's clients, Michelle Meyer, BOA's top economist, said the overall economy is in a “deep plunge” as the fallout from the virus continues to ripple across nearly every sector of American business.
“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 wrote, according to CNBC. “Jobs will be lost, wealth will be destroyed and confidence depressed.”
On Monday, the UCLA Anderson Forecast — a group comprised of economists at the UCLA Anderson School of Management — also announced that the economy had stopped growing and will remain in recession through the end of September, according to the Los Angeles Times.
The group reached its conclusion after reviewing the impact of the 1957–58 H2N2 influenza pandemic on the U.S. economy and found that the rapid effects on the economy from the virus would slow first-quarter economic growth to a rate of 0.4% and that the economy would shrink at a 6.5% rate in the second quarter and a 1.9% rate in the third quarter, L.A. Times reported.
Assuming the pandemic ends this summer and supply chains are restored, the forecast predicts the resumption of normal economic activity and an economic growth rate of 4% in the fourth quarter.
Donald Trump predicts ‘surge’
Even President Donald Trump admitted this week that the U.S. could be headed toward a recession. “It may be,” Trump said when asked about it Monday.
“I think there’s a tremendous pent-up demand both in terms of the stock market and in terms of the economy,” he added. “Once this goes away, once it goes through and we’re done with it, I think you’re going to see a tremendous surge.”
The impact so far
Wall Street has now given up nearly all of its gains since President Trump was elected in 2016. Currently, U.S. stocks are on pace for the worst week since 2008.
Additionally, the ongoing dispute between Russia and Saudi Arabia over oil prices and production has only exacerbated the economic fallout, The Hill reports.
Jobless claims are surging across the U.S. after government officials ordered millions of workers, students and shoppers to stay at home as a precaution against spreading the virus that causes the COVID-19 disease, according to The Associated Press.
The number of Americans filing new claims for unemployment benefits surged last week by 70,000 to the highest level in more than two years, indicating that the effect of the coronavirus was starting to be felt in rising layoffs in the job market, AP reports.
The Labor Department reported Thursday that applications for benefits, a good proxy for layoffs, rose by 70,000 to a seasonally adjusted 281,000 benefit applications last week. That was the highest weekly total since Sept. 2, 2017, following Hurricane Harvey.
It’s becoming more clear that the implementation of social-distancing is grinding everyday business to a halt and sinking the economy even further.
“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, according to AP. “The hope is, the more severe the lockdown, the sharper the rebound will be.’’
The temporary closure of business in the hospitality industry like hotels, bars, restaurants and retail shops means low-wage earners will be particularly hard hit, as every community relies on these establishments, The Washington Post reports.
“We recognize that one part of the economy will bear the brunt of this crisis because of the need for social isolation,” Ball State University economist Michael Hicks said, but “we chose to do something that was damaging to them to avoid something worse for everybody else.”
Meyer said that while the current “decline is severe, we believe it will be fairly short lived,” according to The Hill.
Meyer said the aggressive stimulus actions being taken by the Trump administration would ultimately determine how the country comes out on the other end of the crisis.
“When it comes to the policy response, there should be no upper bound for the size of stimulus, in our view,” she reportedly wrote.
A tough reality
The U.S. economy has never faced a crisis of such magnitude.
Even the shock of the 9/11 terrorist attacks was short-lived. The financial crisis and the Great Recession were devastating but weren't intertwined with a calamitous health crisis, AP reports.
Daco said Americans should expect to endure more economic pain in the short term. He predicts the American economy to shrink at a 12% annual rate in the April-June quarter. That would be the most dismal quarter on record dating back to 1947, according to AP. After a second-half rebound, Daco thinks the economy will post zero growth for 2020 as a whole.
— Information provided by The Associated Press was used to supplement this report.