By Quentin Calhoun

Under the pressure of the global COVID-19 pandemic and various other factors, the stock market began a precipitous, inordinate fall in February. By mid-March, American stock indexes like the S&P 500, Dow Jones Industrial Average, and NASDAQ all fell over 30% from their mid-February highs. 

Further, an oil price war between Saudi Arabia and Russia threatens to cripple the American oil industry if the price of crude oil remains too low for too long. That price war, in conjunction with a collapse in demand for oil due to the pandemic, caused a futures market for May delivery of West Texas Intermediate crude oil to settle at -$37.63 per barrel.

Though the stock market appears to have stabilized after its March lows and the volatility associated with the collapse in the price of oil, the wider American economy is beginning to feel the shocks of the crisis. 

Under pressure from stay-at-home orders, jobless claims have skyrocketed. During the three weeks from March 14 to April 4, American jobless claims exceeded 16.7 million—more job losses than recorded over two years during the 2008 financial crisis. Worse, many individuals are struggling to file for unemployment benefits at all, as calls overwhelm state labor departments. During the last week of March, the New York Labor Department received 8.2 million calls on a system that normally handles 50,000 a week.

Liam Apperly, a furloughed Texan and family breadwinner, reported calling his state’s department 5,257 times over two weeks, failing every time to connect with an agent to file a claim.

Janet Yellen, the former Chair of the Federal Reserve, estimated on April 6 that unemployment had already reached 12-13%. Official unemployment statistics, because of how they are measured, lag massive changes. The March jobs report released on April 3 measured unemployment to be 4.4%.

As more lose their jobs, some officials have begun to plan to reopen the economy. After initially suggesting that the economy would reopen by Easter, U.S. President Donald Trump (R) set a new target of the end of April. Larry Kudlow, Director of the United States National Economic Council, echoed this sentiment.

Texas Lt. Gov. Dan Patrick (R) went so far as to argue on March 23 that the effects of the economic crisis could become worse than American deaths due to the virus. He rhetorically asked “As a senior citizen, are you willing to take a chance on your survival in exchange for keeping America that all America loves for your children and grandchildren?’ And if that’s the exchange, I’m all in.”

Krystal Ball, a left-wing Hill.TV host, sardonically joked after Patrick’s comments, “Mommy, what happened to Grandma? Well, Timmy, she died so that the S&P 500 wouldn’t fall below its 90-day moving average.”

Multiple Republican and Democratic governors have rebuked efforts to re-open their economies before the epidemic is halted. Not only would this result in unnecessary deaths, but they argue that no economy would be able to operate at full capacity during a pandemic. Ohio Gov. Mike DeWine (R) said that he generally agreed with the President on fighting the virus, but “when people are dying, when people don’t feel safe, this economy is not coming back.”

Rapid extensive action by the federal government and federal reserve have helped stem the crisis, but major banks now anticipate a massive recession.

On April 9, JP Morgan economists estimated that during the second fiscal quarter of 2020, U.S. GDP growth will be -40%, a devastating number that eclipses their already horrible previous estimate of -25% growth. 

In addition, JP Morgan anticipates that April’s unemployment rate will rise to 20%— nearly double the highest rate ever recorded since the U.S. Bureau of Labor Statistics began gathering unemployment data in 1948.

Despite the rapidly evolving crisis, many experts have advised against the panic of a ‘2nd Great Depression’. 

President of the St. Louis Federal Reserve James Bullard stated that, despite the Federal Reserve’s projection of a peak unemployment rate of 32.1%, “there is nothing fundamentally wrong with the economy.” Instead, he argued that the massive spike in unemployment insurance means that the many American workers are not participating in the economy for the good of the country but are getting the help they need. “We’re asking people to invest in national health,” Bullard says.

Yellen, however, expressed some skepticism. She argued that while rapid recovery may be possible, she doubts that recovery may be as immediate as some hope. It may be unrealistic to anticipate a swift recovery after a “huge, unprecedented, devastating hit,” she says.

“I am worried that the outcome will be worse and it really depends … on just how much damage is done during the time that the economy is shut down,” Yellen said. Because of the delays in the reporting of economic data from the government, it may be difficult to measure the true scope of the downturn for some time.

Featured image credit: Dan Nelson.