WASHINGTON — The coronavirus is dealing a death blow to the longest U.S. economic expansion on record, triggering layoffs and putting intense strain on the nation’s financial system.
In a cruel paradox, the very steps that are needed to contain the outbreak — quarantines, travel restrictions and business closures — are bringing everyday business to a halt and shoving the U.S. economy into recession for the first time since 2009.
“The more rapidly you want to contain the virus, then the more severe the lockdown has to be and the more severe the disruption to economic activity is,’’ said Gregory Daco, chief U.S. economist at Oxford Economics. “The hope is, the more severe the lockdown, the sharper the rebound will be.’’
The “Lockdown Paradox,” he calls it.
Much will depend on how swiftly and aggressively the Federal Reserve, Congress and the Trump administration deliver financial aid to tens of millions of economic victims — from hourly workers with no more income to suddenly furloughed employees to businesses with loans to pay but no customers. Solving the health crisis by shutting down the economy, though, will have to come first.
The U.S. economy has never endured anything like this. The economic shock from the 9/11 terrorist attacks, painful as it was, was short-lived. The financial crisis and the Great Recession were devastating. But they weren’t intertwined with a calamitous health crisis.
In the near term, at least, Daco foresees excruciating economic pain: He expects the American economy to shrink at a staggering 12% annual rate in the April-June quarter. That would be the most dismal quarter on record dating back to 1947. After a second-half rebound, Daco thinks the economy will post zero growth for 2020 as a whole.
Financial markets are bracing for the worst. On Wall Street, the Dow Jones Industrial Average was down more than 1,300 points and has plunged more than 9,600 points, or 33%, since Feb. 12.
The economy has deteriorated with stunning speed. And the United States is hardly alone: The U.N.’s International Labor Organization estimates that the coronavirus outbreak could lead to nearly 25 million job losses worldwide and drain up to $3.4 trillion worth of income by year’s end.
In the United States, a wave of layoffs has just started, especially in industries most vulnerable to an economic standstill: Travel, entertainment, hotels, restaurants, retail stores — the heart of the service sector, which makes up most of the U.S. economy.
Unemployment is sure to rise, perhaps sharply, in the months ahead.
“The U.S. has 2.6 million waiters and waitresses, nearly all of whom will be unemployed by Friday,” said Michael Hicks, an economist who directs Ball State University’s Center for Business and Economic Research. “The April 3 jobs report (for March) will be the single-worst monthly job report in U.S. history. The record is 1.96 million job losses in September, 1945, right after V-J Day.’’
“We are already in recession,’’ said Robin Brooks, chief economist at the Institute of International Finance, an association of financial companies.
Brooks reckons that the U.S. gross domestic product — the broadest gauge of economic output — will fall at a 0.2% annual rate in the January-March quarter and then by 3.6% in the April-June period.
Even President Donald Trump, ever celebratory of the economy’s performance on his watch, conceded this week that the U.S. “may be’’ heading toward a downturn.
Statistics that will capture the economic damage from the virus and the efforts to contain it are just beginning to surface. For now, Brooks fears “all the things we don’t see: The social distancing, the quarantining and the uncertainty aren’t in the hard data yet.’’