Last Monday, a wave of newly unemployed New Yorkers crashed the website for the state’s unemployment insurance system. That’s an indicator of things to come as we are seeing a set of new lay-off announcements.
The Marriott Hotel announced it would be furloughing 10,000 workers around the world. Likewise, Honda announced it is shutting down its North American plants next Monday. Gyms, restaurants and reception desks are empty as fear of interpersonal interaction grips the social and political fabric of America. Unfortunately, the social restrictions needed to contain the outbreak are bad for the economy. However, letting the health crisis worsen would likely cause even worse economic difficulties in the future.
In response, the Dow Jones Industrial Average is down more than 8,300 points since to February 12th. And though the volatility has seen a few positive days, there have not been enough of them to counter the many days of massive declines. The uncertainty caused by the spreading coronavirus is the villain.
At least a dozen analysts are predicting a recession. Notably, Oxford Economics and Pantheon Macroeconomics are both predicting contractions of around 10 percent in the second quarter of 2020. Treasury Secretary Steven Mnuchin discussed with Republican Senators the possibility of 20 percent unemployment if the government didn’t intervene. The US hasn’t seen unemployment at 20 percent since the Great Depression.
All of this puts more pressure on the national debt, which is at its highest, relative to GDP, since the WW2 era.