A U.S. recession? Probably. Depression? Only if the virus is untamed

WASHINGTON – A U.S. recession may already be underway. Could it be worse?

The Great Depression that began with a stock market crash in 1929 and lasted until 1933 scarred a generation with massive unemployment and plummeting economic output.

It reshaped America, shifting migration patterns, and spawning new styles of music, art and literature. Under President Franklin Delano Roosevelt, however, it also prompted creation of an array of programs like unemployment insurance, Social Security retirements benefits, and bank deposit insurance that make a repeat unlikely.

The unpredictable and unprecedented path of the coronavirus has drawn parallels with the Depression, in particular with predictions that the rise in unemployment and the percentage drop in economic output could rival those seen in the 1930s.

But for that to happen, the jawdropping numbers likely to be recorded in coming weeks – millions thrown out of work, double-digit declines in gross domestic product – would need to be both deep and sustained over years, not months.

“There is no specific definition of a depression,” said Bernard Baumohl, chief global economist of the Economic Outlook Group. But “it’s palpably different,” than a recession in terms of its length and depth.

In the Great Depression for example, the United States shed 20% of its jobs over three years, four times the share lost in the 2007 to 2009 Great Recession (tmsnrt.rs/2UA9wvX).

Over the four years of the Great Depression nearly a third of U.S. output disappeared. While some economists think U.S. annualized output in the April to June period may fall 14% or more, few think that type of decline will actually persist over time.

Government spending makes a difference. Unemployment claims have skyrocketed, but so has the amount of money the government plans to transfer to people and companies big and small.

These “stabilizers” have proved powerful in past downturns (tmsnrt.rs/39hoEnB).

Central banks matter too. Federal Reserve policy mistakes and failure to prevent a run of bank closures arguably contributed to the Great Depression.

This time, as in 2007, the Fed and global central banks have moved to soak the economy in cash and enact new programs to try to limit the risk of business failures and sustained unemployment.

The most important next step, a growing body of economists and policymakers say, is fixing America’s public health response. A haphazard patchwork of restrictions across states and a slow-to-mobilize White House could make coronavirus’ impacts worse, health experts say.

President Donald Trump’s push to “reopen” the economy quickly carries risks. Lifting lockdown restrictions too early could cause a second wave of the disease, according to a China-focused study published this week in the Lancet Public Health Journal.

The higher the toll of the virus, and the longer the outbreak lasts, the more damage to the economy.

“The first order of business will be to get the spread of the virus under control and then resume economic activity,” Fed chair Jerome Powell said on Thursday.

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Biden calls Trump's Easter back-to-business goal 'catastrophic'

(Reuters) – Democratic presidential candidate Joe Biden said on Wednesday that potential efforts by President Donald Trump to re-open American businesses in time for the Easter holiday could be “catastrophic.”

The governors of at least 18 states, including New York and California, have issued stay-at-home directives affecting about half the U.S. population, and shuttering many businesses, in a costly effort to slow the deadly pathogen’s spread.

Trump on Tuesday told reporters he would like to see businesses opening their doors again by Easter, which will be celebrated on April 12. “I would love to have the country opened up and just raring to go by Easter,” he said on Fox News Channel.

Biden, the front-runner for the Democratic nomination to face Trump in the November election, said a quick return to normalcy could backfire.

“Now he’s suggesting he wants to get the country back opened by Easter,” Biden told reporters on a video conference, warning that it was an arbitrary or symbolic timeline.

“It would be a catastrophic thing to do for our people and for our economy if we sent people back to work just as we were beginning to see the impact of social distancing take hold only to unleash a second spike in infections,” Biden said. “That’d be far more devastating in the long run.”

Biden has been critical of Trump’s response to the coronavirus, saying that a delayed effort to scramble tests and medical equipment meant Americans would be hit harder and take longer to recover. On Tuesday, he said on MSNBC that it “would be a real resurrection” to see American businesses re-open by Easter.

Biden also called on businesses and investors to be guided by “the science of medicine” and “not the science of Wall Street” as they weigh what path is best for the economy.

Trump and his coronavirus team on March 16 put in place recommendations for people across the country to cut down social and professional interactions for 15 days in a bid to reduce the spread of the coronavirus. Public health experts have said the timing for ending such orders must be flexible and based on medical research.

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Schumer: help for health system, local governments in coronavirus package

WASHINGTON (Reuters) – Senate Democratic leader Chuck Schumer said on Wednesday the coronavirus legislation deal agreed to in the Senate includes $130 billion for the U.S. health care system and $150 billion to help state and local governments deal with the pandemic.

Republicans and Democrats agreed on the $2 trillion bipartisan package early on Wednesday, which Schumer said also included strong oversight of large loans to corporations made by the U.S. Treasury. [nL1N2BI04K] “We have greatly strengthened the bill and we’re proud of what we’ve done,” Schumer said in an interview with CNN.

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Wall Street rebound fizzles out as fears of virus impact persist

(Reuters) – Wall Street fell in choppy trading on Wednesday after a strong rebound in the previous session as optimism about an imminent $2 trillion coronavirus package waned, with investors still concerned about the lasting economic hit from the pandemic.

All three main indexes had snapped higher in early trading following reports that Washington had reached a deal on a $2 trillion stimulus package to aid businesses and millions of Americans hit by the economic fallout of the outbreak.

But fears about a looming global recession and the likelihood of corporate defaults amid a collapse in business activity quickly sent the benchmark S&P 500 .SPX and tech-heavy Nasdaq .IXIC lower.

The Dow .DJI flitted between small gains and losses.

“Markets are going to stay very volatile until one of three things happens: either the number of new infections in the U.S. peaks, there is some kind of a cure or vaccine developed or until the U.S. economy begins to reopen,” said Randy Watts, chief investment strategist at William O’Neil+Co in New York.

Wall Street had staged a furious rally on Tuesday, with the Dow posting its best day since 1933, in wild swings that were last seen at the height of the global financial crisis.

The Senate will vote on the bill later on Wednesday and the House of Representatives is expected to follow soon after.

The total figure at stake exceeds the amount the country spends on national defense, scientific research, highway construction and other discretionary programs combined.

“What’s remarkable in this particular crisis, compared to 2008 is the response by policymakers because the speed with which they’ve revamped existing programs and introduced new ones is completely unprecedented,” said Andrea Cicione, head of strategy at TS Lombard.

At 10:36 a.m. ET the Dow Jones Industrial Average .DJI was up 147.45 points, or 0.71%, at 20,852.36, the S&P 500 .SPX was down 10.96 points, or 0.45%, at 2,436.37 and the Nasdaq Composite .IXIC was down 70.90 points, or 0.96%, at 7,346.96.

While the S&P 500 recovered about $1.8 trillion in value in Tuesday’s session, it is still off about $8 trillion from its mid February peak.

Boeing Co (BA.N) led gains on the Dow, surging nearly 12%, and continuing this week’s rally as sources said it planned to restart 737 MAX production by May.

Nike (NKE.N) gained 11% after beating quarterly revenue estimates and reporting rebounding sales in China.

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American Airlines (AAL.O), Royal Caribbean Cruises (RCL.N) and Norwegian Cruise Line Holdings (NCLH.N), among the hardest hit by the coronavirus pandemic, jumped between 13% and 23%.

Advancing issues outnumbered decliners more than 1-to-1 on the NYSE and the Nasdaq.

The S&P index recorded no new 52-week high and four new lows, while the Nasdaq recorded three new highs and 31 new lows.

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House Speaker Pelosi sees 'real optimism' for coronavirus deal in next few hours: CNBC

WASHINGTON (Reuters) – Democratic U.S. House Speaker Nancy Pelosi said that later on Tuesday Congress could soon reach a deal to pass an economic relief package for the fallout from the coronavirus crisis.

“I think there is a real optimism that we could get something done in the next few hours,” she said in an interview with CNBC.

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