A Message From Our Editor
Mar 19, 2020 01:52PM
By David Dykes
We haven’t seen anything like it.
The coronavirus has taken a human toll – at least one dead in South Carolina – and disrupted families, schools, businesses, churches and myriad other events and activities.
We all want to know when it will end, and how long will it take to recover.
The bet here is it will take months, perhaps longer. The impact has been abrupt and sharp.
Economists and analysts in the Wells Fargo Securities Economics Group say it is no longer a question of whether the coronavirus outbreak will take a toll on the U.S. economy, but to what degree.
They noted that for the week ending March 14, initial jobless claims jumped to 281,000, marking a a material increase from the prior 10 weeks of the quarter, when weekly claims averaged 212,000.
Moreover, the speed and breadth at which economic activity is grinding to a halt is anything but average, they wrote in a research report. They noted tens of thousands of restaurants and bars have closed their doors, retailers have temporarily shuttered stores and major hotel chains have announced layoffs.
They wrote that total U.S. initial jobless claims could reach well over 1 million in the coming week.
Jay Bryson, acting chief economist in the Wells Fargo economics group, noted last month many economies were essentially locking down to combat the spread of the COVID-19 outbreak.
“We now project that the U.S. economy will fall into a sharp, albeit short-lived, recession” in the second quarter of this year, Bryson said.
He cited two negative shocks: the COVID-19 outbreak and the marked plunge in oil prices, a blow to the energy sector.
He looks for the economy to contract at an annualized pace exceeding 3 percent in the second quarter and more than 2 percent in the third quarter before returning to a positive growth trajectory at the end of the year.
He projects real GDP will fall by 1.4 percent over the next two quarters, which would constitute, more or less, an “average” recession.
“Fortunately, the economy built up few major imbalances (e.g., major housing bubble, an over-indebted household sector, leveraged bank balance sheets, etc.) during this expansion, so the economy should return to a positive trajectory once the growth-slowing effects of the two shocks dissipate,” Bryson said.
He believes there are a number of channels through which the COVID-19 pandemic will negatively affect the economy. First, weaker economic growth in the rest of the world will depress American exports in coming months. Second, economic activity in industries such as air travel, hotels and restaurants is nosediving.
“Although some businesses in these industries may not reduce staff immediately, the income-destroying effects of reduced hours and lower gratuities, etc., will have multiplier effects on the rest of the economy,” the economist stressed. “That is, workers who experience reduced income will begin to cut their levels of spending, which will then adversely affect other industries.”
He looks for growth in real personal consumption spending, which accounts for roughly two-thirds of overall spending in the economy, to weaken markedly in the coming two quarters.
He also believes there are potential supply-side disruptions that could cause some industrial production to grind to a halt, with negative consequences for the rest of the economy.
“On a more positive note, it appears that many industries have ample inputs in stock, so they should be able to ride out supply disruptions that prove to be short-lived,” Bryson said.
He noted the stock market had gone into virtual freefall, and corporate bond spreads widened markedly. Tight capital markets likely will lead commercial banks to tighten lending standards to businesses and consumers, a move that could generate more headwind against economic growth, he said.
“All economic forecasts are subject to uncertainty,” Bryson said. “But we want to stress that the economic outlook is more uncertain than usual. The path that the U.S. economy takes in coming months will depend in large part on how the COVID-19 outbreak evolves, which is highly uncertain.
“If American authorities manage to get the outbreak under control in coming weeks, then real GDP may not decline as much as we fear. On the other hand, if the outbreak continues to accelerate well into the second quarter, then the contraction in U.S. real GDP could be even deeper than we currently project.”
So, we’ve hunkered down as churches canceled Sunday services, restaurants and bars closed their dine-in services, the city of Columbia declared a curfew, and businesses curtail operating hours. Some are only handling customer requests online, by telephone or via the U.S. Postal Service.
But you have an ally at Integrated Media Publishing. We’re committed to using our magazines and websites in Greenville, Columbia and Charleston to help you navigate the peril, share ideas on how to get through it, and explain the lessons learned to carry us forward.
We’ll be a leader in that discussion. Please join us.