“The time that it takes for the economy to return to its previous peak level of activity or its previous trend path may be quite extended,” the committee’s report said.
States and communities began issuing stay-at-home orders in mid-March to stem the spread of the highly contagious virus. The moves prevented an estimated 60 million coronavirus infections in the United States, according to a study published Monday, but came at a great cost to the economy. More than 40 million Americans lost their jobs as consumers stayed out of shopping malls, restaurants, theaters and other places where crowds gathers. Travel, tourism, retail and other industries were devastated, tipping such well-known brands as J. Crew, Neiman Marcus and Hertz into bankruptcy.
Though the nation’s unemployment rate dropped to 13.3 percent in May, versus 14.7 percent in April, the reading comes with an asterisk. The Bureau of Labor Statistics said it had misclassified data in May, April and March. Without the error, the unemployment rate would have been 16.3 percent for May and 19.7 percent for April, the agency said.
Now, as states gradually ease pandemic restrictions, the question will be whether “reopening” fuels an economic turnaround anytime soon, or whether the downturn will extend into next year as people struggle to go back to work and the nation contends with a possible second wave of infections.
That the economy had plunged into a recession was not a surprise. As economist Ernie Tedeschi put it: “It’s now official (and utterly unsurprising).”
Still, NBER’s report highlighted just how sharply the pandemic upended vast swaths of the economy and closed the book on an expansion that started in June 2009.
“In the case of the February 2020 peak in economic activity, the committee concluded that the drop in activity had been so great and so widely diffused throughout the economy that the downturn should be classified as a recession even if it proved to be quite brief,” the report noted.
In tracking business cycles and their inflection points, the NBER committee also takes into account indicators such as initial unemployment insurance claims, wholesale retail sales and industrial production. The committee’s official reports come retrospectively — or once it becomes clear there won’t be a need for major revisions even when more data becomes available.
Government officials and economists have offered different timelines for when the economy might rebound, offering up an alphabet soup of W-, V- and U-shaped recoveries that could unfold later in the year or into 2021.
The nonpartisan Congressional Budget Office expects the economic consequences of the novel coronavirus to exceed $8 trillion and suggests the economy will not fully recover until 2030. It also expects unemployment to hover above 10 percent into 2021, meaning the nation could still have joblessness that is worse than the Great Recession for months.
But experts say the turnaround will hinge on controlling the spread of the novel coronavirus, which has killed more than 109,000 people in the United States.
The NBER report had no effect on Wall Street, which is in the midst of a stunning three-month rally. On Monday, the Standard & Poor’s 500 index moved into positive territory for the year, the tech-heavy Nasdaq Composite set a record high and the Dow Jones industrial average extended its winning streak to six days.