Coronavirus unemployment could dwarf the Great Depression. As painful and unsettling as what's happened so far, there’s no sugar coating what's ahead.
We've been warned to brace ourselves for over 100,000 deaths, maybe over 200,000, from the new coronavirus that as yet has no vaccine or cure. We also need to brace ourselves for an economic tsunami that is unlike anything we've seen before.
Two weeks ago there were 3.3 million first-time unemployment claims. Last week, we learned Thursday, that doubled to a record 6.6 million. The St. Louis Federal Reserve projected Monday that 47 million Americans could be laid off in the coming weeks and months, as the damage from this terrible virus mounts. This translates to a 32.1% unemployment rate.
Even at the depth of the Great Depression nine decades ago, the official jobless rate peaked at “just” 24.9%. And during the Great Recession of 2007-09, the country wasn’t on lockdown. You could fly and eat out, and the unemployment rate peaked at what may soon seem like a quaint 10.0%.
In 2001, the economy was in a recession even before the terror attacks on New York and Washington. We were told to go shopping, eat out, visit Disney World to keep the economy going. American consumers — who account for about 70% of U.S. economic activity — kept things afloat.We can't even spend money to help
I did my part, flying from New York to Los Angeles just six days after the attacks, checking into a swanky hotel, and eating out every night. On the way back, I stopped in Las Vegas for a day to sit at a crowded blackjack table, touching the same cards everyone else was touching. I didn’t give any of it a second thought.
But we can’t do these things now. The malls, stores and restaurants are closed. Disney World is closed. We're wearing gloves and masks, staying far from people, and mostly staying home. We've canceled trips and concerts and dinners with friends.
Most consumer spending is considered “non-discretionary” — that is, necessary, recurring expenses such as housing, groceries and utilities. But Constance Hunter, chief economist at KPMG, notes that 25% of it is “discretionary” spending — a vacation, entertainment, new shoes. This is already “falling massively,” she tells me from Long Island, where she has been hunkered down for several weeks. “Do the math. That 25% of the economy will fall by 65% in the second quarter,” which began Wednesday.
It has already started. Take the gargantuan travel industry, which a trade group says supports nearly 16 million American jobs. Airlines have been all but grounded, and for the week ended March 25, U.S. hotel revenue was down 78% from the same period in 2019. Restaurants and bars/lounges were down 59% and 52% respectively for the same period, according to an analysis of transaction data by Womply, a software and business services provider.
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As for that $2.2 trillion, Hunter warns we’ll burn through it pretty quickly. “The direct money to households assumes four months of benefits,” she tells me. If the virus subsides, as appears to be the case in China, and possibly Italy, that may be enough to get us through this. On the other hand, there are concerns about a potential second wave of the virus.No sugar-coating what's ahead
It’s worth remembering that the influenza pandemic of a century ago that killed 675,000 Americans came in three waves. Then there is this: We’re told that a coronavirus vaccine is 12 to 18 months away.
From an economic standpoint, we’ve thrown the kitchen sink at this virus. Americans are getting some cash to help tide them over for a brief period. The Federal Reserve has cut interest rates to zero. It will backstop corporate bonds, even short-term municipal bonds— something that wasn’t necessary even during the 2007-’09 meltdown.
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These remedies, both fiscal and monetary, are helpful. But the underlying problem — the virus itself — remains. We’re in a race against time here, and even when a vaccine is developed, the long-term economic damage will linger. It may be a while before we grow relaxed again about taking a cruise, wading into crowds, going to a packed concert, or touching the cards at a casino.
In fact, a new Gallup poll shows most Americans are uneasy about the virus and would move back into normal activities slowly, even after cases fall and social distancing orders are lifted. But first we need to get through the next month. As painful and unsettling as all of this has been so far, there’s no sugar coating what's ahead of us: Death on a mass scale, and an economy that has been flattened.
Paul Brandus, founder and White House bureau chief of West Wing Reports, is the author of "Under This Roof: The White House and the Presidency" and a member of USA TODAY's Board of Contributors. Follow him on Twitter: @WestWingReport
This piece expresses the views of its author, separate from those of this publication.
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