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The recession has begun - will this be a depression?

Businesses slash 700,000 jobs in the first half of March
By Masao Suzuki |
April 4, 2020
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San José, CA - On Friday, April 3, the U.S. Department of Labor reported that businesses cut more than 700,000 jobs last month. This report was based on surveys from the first half of March, before the full impact of the COVID-19 pandemic hit. This ended the longest streak of job gains - almost nine and a half years - and almost certainly marked the beginning of a recession.

The official word on when recessions start, and end, comes from the National Bureau of Economic Research or NBER. The NBER uses four factors: employment, personal income, business sales and industrial production. While the monthly reports on income, sales and industrial production won’t be released until later in the month, with the job losses and cuts in wages and hours, business closing, and factories shutting down, they will all be down for the month. And of the four, the NBER considers the job numbers as most important.

The first wave of layoffs hit the service industries, with restaurants and bars cutting more than 400,000 jobs in the first half of the month. Healthcare also lost more than 60,000 jobs. Despite the frantic scenes of hospitals being overwhelmed with COVID-19 patients, the country’s dentists, smaller doctors’ offices and other health providers were closing. Not surprisingly, temporary workers and retail workers also has job losses close to 50,000 each. But even during the first half the month, the job losses had spread to other sectors, including construction and manufacturing.

From the new applications for unemployment insurance, we know that at least 10 million more workers lost their jobs in the last two weeks of March, and job losses are continuing in April. Even many workers whose businesses did not have to close because employees could work from home are now laying off workers and cutting hours as their sales decline along with the economy. After a surge of buying, grocers and drug stores are reporting that sales are falling back.

The federal government’s new guaranteed loan program for small businesses got off to a rocky start today, with at least one major bank not ready to offer loans and another only taking applications from existing customers. Banks are also tightening up on their lending in general, which will limit credit and make the downturn worse.

Rent and mortgage payments came due on April 1, and there is no telling how many households won’t be able to come up with payments. Even in places where the local government has put a moratorium on evictions, the past due rent will be piling up into massive debts. Despite the new law paying for COVID-19 testing, treatment is not covered, and medical bills are piling up, putting both patients and hospitals at financial risk.

Most economists believe that the economy will bounce back quickly and rule out the possibility of a long recession or even a depression. But the last time the economy went into free fall, during the financial crisis in 2008, it took years for the lost jobs to come back. The 10 million jobs lost in the second half of March is just the beginning, not the end, of the job plunge. With more jobs lost in just two weeks than in the two years of the last recession, there is little reason to believe that the economy will recover quickly. While there is no official definition of a depression, an economic crisis worse than 2008 and lasting even longer will certainly feel like one to working people.