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U.S. Economy Takes a Brutal 4.8% Rate Hit From the Coronavirus

Leaving economists with no other choice but to conclude that we are in a recession – and a bad one at that – the Commerce Department released the preliminary numbers for January through March, and they are not good. The numbers show that the initial fallout from the coronavirus and its accompanying shutdowns has caused the economy to decline at a rate of 4.8% (projected annually), which is the worst shrink we’ve seen in any single quarter since 2008’s financial crash.

According to the figures, American spending has declined 7.6% while business investment has dropped 8.6%.

The real problem? The figures don’t account for the dismal month of April, and they certainly don’t account for the months to come. Indeed, some financial institutions such as JPMorgan Chase believe that the numbers for January-March are optimistic even for the time frame. We’ve heard suggestions that the final number could be as high as an 11% contraction.

Even if the number is closer to 4.8%, many economists believe the worst is yet to come.

“This is the worst catastrophe in generations,” Harvard University Professor Kenneth Rogoff told the Washington Post. “It could take us 10 years to get back to where we started. That’s not out of the question at this point.”

An estimate from the Congressional Budget Office earlier this week predicted that the economy would begin recovering in the latter part of the year, but even under their projections, they do not expect to see us return to pre-pandemic levels for some time.

“After a sharp contraction in the second quarter, economic growth is expected to average about 17 percent at an annual rate in the second half of calendar year 2020,” the CBO said in their report. “Increases in consumer spending are expected to more than offset further declines in business investment during that period. In 2021, real GDP is projected to grow by 2.8 percent, on a fourth-quarter-to-fourth-quarter basis. Under that projection, real GDP at the end of 2021 would be 6.7 percent below what CBO projected for that quarter in its economic outlook produced in January 2020.”

Real predictions are hard to make at this time, of course, because we’re dealing with something that is nearly-unprecedented. It’s not like the 2008 recession, where we saw some of the bedrock financial foundations of our economy start to fall apart. If the coronavirus suddenly disappeared from our lives tomorrow, there’s no reason why the economy couldn’t bounce back nearly as quickly as it crashed. Unfortunately, that disappearance is unlikely, and even when states begin lifting their lockdowns, it’s not at all certain that consumer spending will jump back to where it was before the coronavirus. Especially considering the fact that many Americans have lost their jobs.

And if this disease keeps circulating through the population, scaring people away from stores, restaurants, and other forms of spending, we could be in for a long, long recovery indeed.

Written by Andrew

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