The US economy entered a recession in February as the coronavirus struck the nation, a group of economists declare, ending the longest expansion on record.
The economists say that employment, income and spending peaked in February and then fell sharply afterwards as the viral outbreak shut down businesses across the country, marking the start of the downturn after nearly 11 full years of economic growth.
A committee within the National Bureau of Economic Research, a private nonprofit group, determines when recessions begin and end. It broadly defines a recession as “a decline in economic activity that lasts more than a few months”.
For that reason, the NBER typically waits longer before making a determination that the economy is in a downturn.
“The unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions,” the NBER panel said.
The way the NBER defines recessions, they begin in the same month that the previous expansion ends. Because the economy peaked in February, that is the month when the recession officially began, rather than in March, when unemployment began to rise.
The unemployment rate is officially 13.3 per cent, down from 14.7 per cent in April. Both figures are higher than in any other downturn since World War II.
A broader measure of underemployment that includes those who have given up looking and those who have been reduced to part-time status is 21.2 per cent.
On Friday, the government said that employers added 2.5 million jobs in May, an unexpected gain that suggested job losses may have bottomed out.
A recession ends when employment and output start to pick up again, not when they reach their pre-recession levels. So it’s possible that the recession could technically end soon.
That would make the current recession the shortest and deepest on record. It is expected to be followed by an extended recovery before the economy manages to regain its pre-pandemic levels of production and employment. Some economists say it could take two years or more, with the unemployment rate likely still 10 per cent or higher at the end of this year.
“The most important thing to focus on is the strength of the recovery, and that’s where the greatest uncertainty lies right now,” said Ernie Tedeschi, policy economist at investment bank Evercore ISI.
It’s unclear, Tedeschi noted, whether the virus is under control, whether there will be a second wave or whether or when a vaccine will be developed.
In the US, states have begun reopening their economies, thereby allowing businesses to recall some employees to work. But economic activity is returning only very gradually.
A full recovery won’t occur until Americans are willing to resume their previous habits of shopping, eating out, and travelling. That might not happen until a vaccine is developed or testing is more widely available.
Diane Swonk, chief economist at Grant Thornton, an accounting firm, said the NBER committee might end up declaring this recession to have already ended in May based on the fact that hiring rebounded that month.
“We could have the shortest recession in history – it seems ridiculous, but we could,” Swonk said. Still, it will take much longer for the economy to rebound, she said.
“This bottom is going to be uniquely deep, and we don’t know how fast we will get out of the bottom,” she said.