The U.S. Likely Already in Recession
The U.S. is probably already in recession due to a fear-induced slowdown from the coronavirus epidemic. Economist Alan Blinder said on Wednesday.
Blinder told CNBC that he wouldn’t be surprised if they looked back at data and it was decided that the recession started in March.
He added that they wouldn’t know since it takes time to get data that would be relevant to make a call like that.
However, he said the data wouldn’t surprise him.
Blinder is a former Fed Reserve vice chairman, not a professor at Princeton.
Two consecutive quarters of negative economic growth often define a recession. But other factors such as dramatic changes in the rate of unemployment also contribute.
However, the National Bureau of Economic Research (NBER) is the ultimate judge.
The Great Recession was deemed to have started in Dec 2017, but the NBER didn’t declare it until a year later.
According to Blinder, the “fear of shopping” and being in public places where the coronavirus can spread, is the leading cause of the current slowdown.
“You can understand why people don’t want to go to restaurants, shopping malls, not to mention travel,” he said. “Spending on all of those categories has probably plummeted and much faster than our system catches it.”
Worries about future activity
Lately, economic data has been excellent.
A sharp drop in mortgage rates has led to a sharp increase in house sales and refinancing. The economy added 273,000 more jobs in February.
The Atlanta Fed is tracking its first-quarter GDP at a robust 3.1%
The Citi Economic Surprise Index is peaking at its highest level in more than two years. The index measures data against Wall Street estimates.
However, the worry is about the virus-related slowdown and how it will affect future activity amid an increasing number of cases. The concern is about the economic impact when the coronavirus effects are felt fully.
On Wednesday, Steven Mnuchin said that multiple industries would feel the impact- specifically mentioning travel.
Blinder agreed with Mnuchin; however, he emphasized that it did not just affect travel. He said it was all about anything that puts people in face-to-face contact. Blinder also noted that this was going to go through the country the same way a normal recession forces would go through an economy.
He added that looking back at the episode, and they’ll conclude that March 2020 is already a recession month.
In a Wall Street Journal, Blinder said the government needed to distribute COVID-19 test kits aggressively. He also advocated for stimulus measures with an immediate impact, such as government-subsidized sick leave for affected workers and a payroll tax holiday.
He also advised administrative officials to communicate better.
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