The US economy ended its longest expansion in history in February and entered recession as a result of the coronavirus pandemic, the private economics research group that acts as the arbiter for determining US business cycles said on Monday.
The Business Cycle Dating Committee of the National Bureau of Economic Research said in a statement its members “concluded that 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 designation was expected, but notable for its speed, coming a mere four months after the recession began. The committee has typically waited longer before making a recession call in order to be sure. When the economy started declining in late 2007, for example, the group did not pinpoint the start of the recession until a year later.
But the depth and speed of this collapse left little doubt.
“In deciding whether to identify a recession, the committee weighs the depth of the contraction, its duration, and whether economic activity declined broadly across the economy. ... The committee recognizes that the pandemic and the public health response have resulted in a downturn with different characteristics and dynamics than prior recessions,” the committee said in a statement.
US gross domestic product fell at a 4.8 per cent annualised rate in the first three months of the year. The outcome for the April to June period is expected to show an even worse annualised decline of perhaps 20 per cent or more. The unemployment rate rose from a record low of 3.5 per cent in February, hitting 14.7 per cent in April and 13.3 per cent last month.
But growth may well recover from there, possibly making the current downturn not only among the sharpest but also among the shortest on record.
Since World War Two recessions have lasted from six to 18 months, nothing close to the 43-month downturn of the Great Depression that began in 1929.
Though the data that began to accumulate in March rival some of the statistics from the Depression era, economists expect growth to resume this summer and likely continue unless the virus resurges.
“It could very well be that this is the beginning of the trough,” Jack Kleinhenz, chief economist for the National Retail Federation, said in an economic outlook seminar organised by the National Association for Business Economics. But “there are so many moving parts,” he said. “If we have a reoccurrence of the pandemic and it comes on stronger, there is the potential of another dip” in economic growth.
The speed of the recovery will be important in determining whether the current recession has the same lasting impact as past downturns. The 2007 to 2009 recession, for example, was associated with a permanent loss of several hundred thousand blue-collar manufacturing jobs, sustained long-term unemployment, and years of weak wage growth for middle- and lower-income families.
The US Federal Reserve meets this week, and officials will issue new economic projections that show how quick a recovery they expect.