- It’s been about two months since the U.S. started sweeping blockages to contain the spread of the coronavirus.
- The economic pain of the coronavirus recession quickly outweighed that of the Great Recession in such a short time, as millions of Americans have lost jobs, businesses remain frozen, and consumer spending has been hit hard.
- See below for five charts that show how the coronavirus-induced economic downturn compares to the Great Recession.
- Visit the Business Insider home page for more stories.
It took economists just a few weeks to agree that large shutdowns to contain the spread of the new coronavirus had plunged the US economy into recession.
Now, barely two months since the start of the first home stay orders, the slowdown that followed has passed the Great Recession that lasted 18 months between 2007 and 2009.
“This just shows you how quickly the current crisis has evolved and how deep it is,” Daniel Zhao, an economist at Glassdoor, told Business Insider. The scale and scope of the crisis is very unusual for any type of rapid economic disruption, he added.
There is an overwhelming amount of data showing the full extent of economic suffering: millions of Americans have applied for unemployment insurance, millions of jobs have been cut and consumer spending, retail sales and production dropped record-breaking.
The blow to the job market was particularly extreme amid the closures to contain COVID-19. It only took four weeks for the coronavirus downturn to cut all jobs created since 2009, and nine weeks for unemployment insurance claims to exceed the total deposited during the Great Recession – an 18-month period.
In addition, the unemployment rate in April fell from a 50-year low in February to its highest level since the Great Depression of the 1920s and 1930s. And economists believe it will be even higher in the report on May’s non-farm payroll.
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Apples with oranges
It makes sense to compare the coronavirus-induced slowdown to the Great Recession, as this is the most recent major economic event, said Lindsey Piegza, chief economist at Stifel at Business Insider.
“No one really has the memory to think back to the 80s or the Great Depression,” said Piegza. “So really, the comparison that the market is going to use is how bad it is compared to the financial crisis – this is the paradigm we live in. “
However, there are some key differences between the coronavirus-induced slowdown and the Great Recession. The United States made the decision to shut down the economy to cope with a health event, unlike the Great Recession, which was caused by the financial crisis.
“This current crisis is not due to a structural problem with the economy,” said Zhao. “It was not caused by a housing bubble or a financial crisis. “
The optimistic case, therefore, is that activity and demand should rebound once the economy reopens, according to Zhao.
“If businesses and workers can be helped during the public health crisis, then I hope they can quickly resume normal economic activity on the other side, and we could in fact recover faster than we do we did after the Great Recession, “he said.
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Ryan Sweet, senior economist at Moody’s, said that comparing the coronavirus pandemic to the Great Recession is “apples to oranges.”
“I think it looks more like a natural disaster,” Sweet told Business Insider. He sees similarities in the current blow to the workforce and what happened to workers after Hurricane Katrina, Hurricane Rita and Superstorm Sandy.
Some things are not the same as a natural disaster like Hurricane Katrina, Sweet said. There has been no mass destruction of capital stock, such as homes and businesses, and thousands of people have not been physically displaced.
But in terms of the economy, “the labor force dropped significantly in New Orleans and Louisiana just after Hurricane Katrina and Rita,” he said. “So I would expect something similar. “
The many forms of potential recovery
Even though many states across the country have started to reopen their closings economy, the United States is still solidly in the period that should show the depth of the impact of the pandemic. Economists predict the largest drop in US gross domestic product in the second quarter, which runs from April to June.
Now, economists are watching incoming data for two things – signs that the indicators have reached their worst levels, or that they are starting to rebound.
The slower recovery in the US economy will lead to a shorter recession, classified by the National Bureau of Economic Research as a “significant drop in economic activity spread across the economy, for more than a few months, normally seen in real GDP, real income, employment, industrial production and wholesale and retail sales. “
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Most of the economic damage is expected to occur in the second quarter, which runs from April to June. Economists will continue to monitor the data when it is released to get a full picture and assess what a potential recovery might look like.
Even when states begin to reopen their economies, there is much uncertainty about the future. “I think it is still too early to say what the shape and speed of the recovery will look like,” said Zhao, adding that anyone who has assigned a form of letter to the recovery is “too confident.”
He continued, “There are all kinds of things that could happen on the health care side, on the public health side or on the policy side, all of which could have a huge impact on the economic recovery.” “
The speed at which it could occur is a key thing in all the bets that economists and industry observers have on the potential recovery. While the Great Recession’s rebound was the longest on record, it was also very slow.
Heidi Shierholz, a senior economist at the Economic Policy Institute, said how quickly the United States is recovering from the current crisis depends on the amount of stimulus the government puts into the economy.
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“It’s a choice,” said Shierholz. “One of the things that made the recovery from the Great Recession so bad, so weak is that we, the states and local governments did not get the help they needed to avoid having to make substantial cuts that have crippled the economy. ”
Now the federal government could prevent the same thing from happening, according to Shierholz, by making sure people have benefits even if they don’t work and by helping companies stay afloat even if they aren’t. completely open.
If the government does these things, “when the economy reopens, there will be demand and confidence in the economy for a quick rebound,” said Shierholz.
Below are five key metrics and accompanying graphs showing that the US coronavirus-induced economic slowdown is worse than the one that accompanied the Great Recession.