Whiplash: All at once, a steady US economy screeches to halt
WASHINGTON — Three weeks ago, EmpireCLS was heading toward a second straight year of record business. A car service company in New Jersey, Empire couldn’t even find enough chauffeurs and office workers to meet its needs.
Now? With stunning speed, business in the United States — as well as in Europe and elsewhere — has collapsed in the face of the coronavirus and warnings for everyone to stay home. Suddenly, no one needs a chauffeur.
“We went from full throttle to 90 percent revenue loss in three weeks,” said CEO David Seelinger. “We’ve been through 9/11. We’ve seen recessions. We’ve never seen anything like this.”
Seelinger spent last Sunday laying off 750 of his 900 employees.
“It was the most difficult day of my career,” he said.
Never before has the U.S. economy screeched to such a sudden, violent stop. Its shutdown has inflicted a case of whiplash on Americans who had enjoyed a decade-plus of gains from the job market, the stock market and a steady economic expansion. The economy is cratering into what looks like a deep recession. Millions will likely lose jobs by summer.
“The economy has never gone from healthy to disaster so quickly,” said Jason Furman, who was President Barack Obama’s top economic adviser and is now a professor at Harvard’s Kennedy School.
“In the financial crisis,” Furman noted, “the housing bubble burst in 2006, the first financial tremors were in 2007 and the major financial events were spread out from February through September of 2008. What would take years in a financial crisis has happened in days in this health crisis.”
Since the Great Recession ended in 2009, the economy has risen for a record 11 years. It hasn’t exactly been a boom. Annual growth has averaged a decent but unspectacular 2.3 percent since 2010. Yet the expansion has been solid and durable. Employers have added jobs for 113 straight months, the longest such streak on record.
Just two weeks ago, the government delivered a blockbuster employment report: A healthy gain of 273,000 of jobs in February. A 3.5 percent unemployment rate, a 50-year low.
What’s more, public confidence was up. Consumers were spending. Incomes were rising. Layoffs were rare.
In just a couple of weeks, it’s all ended with the shutdown of most business activity nationwide, and a destructive recession seems inevitable. Goldman Sachs expects the economy to shrink at a sickening 24 percent annual rate in the April-June quarter. That would be, by far, the worst quarterly drop on record. Just days before, Goldman had projected a 5 percent annual drop in that period.
This week, economists say the government could report that up to 3 million people applied for unemployment benefits last week, which would easily set a record. IHS Markit predicts 7 million job losses from April to June and for unemployment to shoot to 8.8 percent by late this year. Other economists see joblessness going much higher than that.
As investors have grasped the depth of the crisis, panic selling has set in. Since Feb. 12, the Dow Jones Industrial Average has plunged 35 percent, wiping out vast household wealth and likely undermining people’s confidence and willingness to spend.
“I’m not sure that anyone honestly has any sense of how this ultimately resolves and on what sort of timetable,” said Daniel Feldman, a former U.S. diplomat who counsels corporations for the law firm Covington & Burling.
Policymakers are straining to help. The Federal Reserve has slashed its benchmark interest rate to near zero and is trying to ensure that companies maintain access to the short-term credit they need for payrolls and other expenses. Congress and the White House are preparing an enormous stimulus program that includes sending checks to households and ensuring some paid sick and family leave.
Typically, economists don’t recognize a recession until long after it’s begun, the warning signs apparent only in hindsight.
“Never in the course of my career have I known the week a recession started,” said Diane Swonk, chief economist at the accounting and consulting firm Grant Thornton, who calculates that the downturn began in the first week of March as the economy all but locked down.
At Stuyvesant Plaza, an office complex and shopping center outside Albany, New York, sales from shops, restaurants and fitness centers had posted double-digit increases in January and February.
And then “the world turned upside down,” said Ed Swyer, president of the plaza.