Home Bankrate.com When Will The U.S. Economy Get Back On Track Following Coronavirus Shock?...

When Will The U.S. Economy Get Back On Track Following Coronavirus Shock? Watch For These 5 Signs

https://www.freepik.com/premium-photo/temporarily-closed-due-coronavirus_9622557.htm#page=1&query=closed+storefront&position=29

Not all recessions are created equally. Neither are the recoveries — and the biggest financial fear is that the current economic slump will persist years after the coronavirus is contained.

Economists often say recessions take on shapes. A “W”-shaped recession is a double-dipping downturn, with the financial system bouncing back but falling again. A “U” form means lower-for-longer, while a “V” means a sharp decline but an equally strong snapback.

That “V” was the ultimate hope when the coronavirus first started spreading in the U.S. Stay-at-home orders were soon issued to keep as many people at home as possible. As retail stores, offices, gyms and bars closed, the economy naturally came to a sudden stop. But there was a silver lining: The economy would surely pick back up where it left off, once those shelters in place were lifted.

Then the data started rolling in. Unemployment surged to its highest levels since the Great Depression, eclipsing that from the Great Recession of 2007-2009. The U.S. economy also contracted by the worst on record in the second three months of 2020, shrinking by 31.7 percent.

Officials at the Federal Reserve see elevated joblessness through 2022, while the Congressional Budget Office also isn’t expecting the economy to get back to where it was until at least two years from now. All of this suggests that the return to normal could happen later — rather than sooner. And amid a resurgence of coronavirus cases, some experts are wondering whether the economy could reverse again.

“What I’m seeing here is a depression-like shock without a depression,” says Joe Brusuelas, chief economist at RSM. “We’re not going to flip a switch and the economy is going to open back up at once. It will take some time to ascertain where the longer-lasting damage is.”

Natural disaster or financial crisis? Current recession has flavors of both

It’s going to be a tricky game of search-and-rescue, simply because the U.S. recession has checked “all of the above” on the list of typical causes.

History suggests that downturns come from different angles. Shocks can be exogenous or endogenous, Brusuelas says — exogenous being an unforeseen external problem and endogenous being economy-restricting policies. But this downturn has flavors of them all.

“It’s hard to even classify what we’re dealing with,” Brusuelas says. “We had supply, demand and financial shocks all at once, cascaded through the real economy. It was like a few years in two weeks.”

Some experts have compared the standstill nature of the current downturn to the Great Depression. But others say it’s more comparable to an “event-driven” recession, or a slowdown that follows some sort of natural disaster or war. Researchers at the New York Fed tracked unemployment claims in Louisiana after Hurricane Katrina, finding that U.S. job losses right now are following a similar pattern, only on a national scale.

“We have no event post-war where the numbers are comparable to this, the only other instance is the Great Depression,” says Samantha Azzarello, global market strategist at J.P. Morgan Asset Management. “But it’s like apples to oranges. It’s much more comparable to a natural disaster.”

BankRate, excerpt posted on SouthFloridaReporter.com, Sept. 16, 2020

Bankrate.com publishes original and objective content to help you make smarter financial decisions. Our award-winning reporters and editors provide expert advice on nearly every major financial decision you may encounter — from purchasing your first home, to selecting a new car, to saving for retirement.