Just how bad is this economic crisis going to get?
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Way back in March, we assembled a group of people who study economic history so that we could ask what the Great Depression can teach us about today’s economic crisis and what we should keep an eye on as the pandemic continues.
When we last spoke with them in May, Eric Hilt, a professor of economic history at Wellesley College, said the economic crisis was shaping up to be worse than he had initially expected.
Carola Frydman, a professor of finance at Northwestern University who studies financial history, and Kathleen Day, a lecturer at Johns Hopkins’ Carey Business School who specializes in financial crises, both said it was hard to tell where the economy was headed with so much uncertainty about the trajectory of the virus.
So now, more than six months after the Trump administration declared a public health emergency in the United States due to the coronavirus outbreak, we got them back on the program to ask how they’re feeling about the economy now.
“I’m growing increasingly pessimistic,” said Hilt. “I’m not feeling good about it at all,” said Day. “Not that much has changed since the last time we talked,” said Frydman. There’s “still a big question mark and a lot of uncertainty.”
But even in uncertain times, there are some markers we can use to keep track of what’s going on. First up? The unemployment rate.
“Although financial markets are doing relatively well, the unemployment rate is still elevated,” said Hilt. “The unemployment rate has come down just a little bit,” said Frydman. “But it’s still very dire,” said Day.
At 10.2%, the unemployment rate last month remained near the worst levels reached during and shortly after the Great Recession.
Last month, the number of unemployed people who have lost their jobs permanently reached 2.9 million.
“And the longer this lasts, the more permanent unemployment will be for some, and the harder it’s going to be to resolve this,” said Frydman.
Also, U.S. commercial bankruptcies are on track to hit a 10-year high, according to S&P Global Market Intelligence. In the past few months, there’ve been several big-name corporate bankruptcies, including J.Crew, J.C. Penney and Lord & Taylor, as well as a slew of energy companies.
“Some of this is a shakeout of companies that might not have made it anyway,” said Day. “But we’re definitely seeing that happen faster.”
Also and related, consumer confidence is down. “That’s a big problem,” said Day. “People are saying, well, maybe I haven’t been laid off … but I better save for a rainy day.”
Spending by or on behalf of consumers accounts for nearly 70% of economic activity. “And when they stop consuming, the economy decelerates,” said Frydman.
There isn’t a perfect historical reference point for the crisis we’re in right now, but Frydman said one lesson from the Spanish flu pandemic of 1918-19 is the importance of government spending in mitigating economic damage. “In that case, it happened because of the war effort, and right now it’s happening through various federal programs,” she said.
But with the $1,200 relief checks, the extra $600 a week in unemployment benefits and the Paycheck Protection Program all behind us until another relief package gets through Congress, consumers are going to have less money in their pockets.
“That’s going to have economic consequences that may ripple throughout the economy,” said Hilt. “I think we all have our hopes on an excellent medical solution to the crisis,” said Frydman. “But that doesn’t mean that the economy will recover immediately thereafter.”
COVID-19 Economy FAQs
Are states ready to roll out COVID-19 vaccines?
Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.
How is the service industry dealing with the return of coronavirus restrictions?
Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.
How are hospitals handling the nationwide surge in COVID-19 cases?
As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.
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