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Is The U.S. Already In A Recession? Here’s What One Top Economist Says

Is The U.S. Already In A Recession? Here’s What One Top Economist Says

We could look back on March 2020 as the start of a recession in the U.S., according to big-name economist.

Stocks had their worst day since 1987 Thursday as the Dow tumbled 2,353 points, or 10%, and the S&P 500 slid 9.5%. That’s a worse fall than the market saw during the financial crisis after Lehman went bust.

What’s worse still is that as stocks fell, bond yields rose, gold prices fell, and there was a drop in corporate bonds. All despite the fact that the Federal Reserve acted to stabilize the Treasury market by pledging to inject it with more than $1 trillion in an effort to calm the market tumult amid the coronavirus meltdown.

“The coronavirus is scary and people don’t know what to expect,” said UBS senior vice president of wealth management, Kathy Entwistle. “It’s like the tsunami is coming. We know it’s going to hit any day and nobody knows what the outcome is going to be.”

And that coronavirus tsunami that’s starting to take hold of America may have already pushed the nation into a recession.

That’s according to economist and former Federal Reserve vice chairman Alan Blinder.

“I wouldn’t be one bit surprised if when we look back at the data, it is decided… that the recession started in March,” Blinder, who is now a professor at Princeton, said on Wednesday. “We won’t know that. It takes months to get the data that would be relevant to call like that. But it wouldn’t be a bit surprising to me.”

Typically, a recession is defined as two consecutive quarters of negative economic growth. However, there are other measures, like dramatic changes in the unemployment rate, that can be considered indicators.

The National Bureau of Economic Research is the ultimate arbiter of when a recession starts, but it could take some time. During the Great Recession, the NBER didn’t declare that December 2007 was the official start of it until a year later.

But Blinder says that the proof of a downturn is already out there as a “fear of shopping” grips consumers who are staying away from public spaces where the coronavirus can be spread.

“You can understand why people don’t want to go to restaurants, shopping malls, not to mention travel,” Blinder said. “Spending on all of those categories has probably plummeted and much faster than our system catches it.”

Treasury Secretary Steven Mnuchin said this week that there will be multiple industries that will see an impact from the COVID-19 outbreak, specifically mentioning travel.

Two notable travel-related industries that are already showing signs of a slowdown are airlines and cruise operators. 

Airlines have been cutting back on international flights, particularly to Asia, as the outbreak has spread and Delta even announced early this week that it would be making deep cuts to its international and domestic flight capacity. Then President Donald Trump announced Wednesday evening a new travel ban for Europeans entering the U.S., and airline stocks tanked.

“This will create enormous cash-flow pressures for airlines,” said International Air Transport Association director general Alexandre de Juniac in a statement from the trade group. “We have already seen [British regional carrier] Flybe go under. And this latest blow could push others in the same direction.”

As for cruise lines, demand for cruises has plummeted after a few high-profile quarantines for passengers and crew on cruise ships with one, Carnival’s Diamond Princess, even becoming the largest outbreak of the virus outside of China last month. Data from SunTrust Robinson Humphrey shows a 35% plunge in cruise bookings last week compared to the same week last year.

“This is going to go through the country the way normal recession forces go through the economy,” Blinder said. “I completely agree with what Secretary Mnuchin just said, but I would go much broader. This is not only about travel, this is about anything that puts people in face-to-face contact.”

“When we look back at this episode, we’ll conclude that March 2020 was already a recession month,” the economist concluded.

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