|The crisis caused air travel, cruise lines, gyms, hotels, auto-manufacturing, and the restaurant industry to temporarily stop their operations. / Photo by Pradpriew via Shutterstock|
We don’t have to be told that there is something wrong with the economy right now. After all, more than half of the world’s population is currently locked down due to the Covid-19 pandemic. The crisis caused air travel, cruise lines, gyms, hotels, auto-manufacturing, and the restaurant industry to temporarily stop their operations. The stock market has also suffered enormous losses and daily swings. Oil prices have likewise plummeted and layoffs in different countries are taking place. Factories are producing less and people are spending and consuming less. So, are we already in a recession?
Recession can be felt with or without data
The resounding response of many economists is: “Yes, we are.” If somehow the country is not yet in recession, it will be in just a matter of days. American news platform Vox spoke to economist Betsey Stevenson from the University of Michigan. As someone appointed to the Council of Economic Adviser during the Obama administration, she believes that even without the data, people can already see a recession. “First of all, everybody is at home,” she said. The question that remains is how long the full magnitude of the economic decline will last.
Consider a bar or restaurant that is mandated to close to stop the spread of the coronavirus. The bartender or staff of such an establishment is laid off. A person who may still be making money still cannot go to that bar or restaurant or choose not to spend his money on bars. Also, that bartender or staff, who is out of work, is no longer earning money. Such is “the paradox of a lockdown economy,” said Oxford Economics’ economist Greg Daco.
Scotland-based economy editor Douglas Fraser, on the other hand, believes that the world is not just in recession but is in something “more challenging” and “much deeper.” It’s just that there is no confirmation yet on if the recession will last a long time. “Such is the nature of data gathering,” he added. Fraser believes that the recession will not last long although it will be deep in the sense that people are now facing social dislocation and health fears worldwide.
For businesses in Scotland, financial survival seems to matter more than brand reputation. Governments are also asking for their people’s trust in scientists and science.
|For businesses in Scotland, financial survival seems to matter more than brand reputation. / Photo by xavitgn via Shutterstock|
Jobless claims in the US
In the United States, the number of Americans applying for unemployment benefits reached 6.6 million in the week ending March 28 as the coronavirus disease intensifies. The Department of Labor said this is nearly double the number of jobless claims a week earlier. What experts view as terrifying in the number of unemployment is not the magnitude but the speed with which companies are shedding workers. In two weeks alone, about 10 million Americans lost their jobs compared to the 9 million jobs that were lost during the 2008 financial crisis. Some people fear that the number of people without work in the US now is even higher because some cannot go out or have not yet filed their claim.
The US Bureau of Labor Statistics shares that the unemployment rate in January 2019 was at 4.0, February and March at 3.8, April and May at 3.6, June, July, and August at 3.7, September at 3.5, October at 3.6, November and December at 3.5, January 2020 at 3.6, February at 3.5 and March at 4.4. The unemployment rate is the percentage of unemployed workers in the country’s total labor force. Unemployment often increases as economic activity declines.
The psychological effect of stock market performance
New York University professor emeritus of economics Richard Sylla also told Vox that stock market performance creates a psychological effect on investors. A 30% decline in the stock market can make investors or people feel poorer so they would tend to spend less. Consequently, it means a decline in demand in the market.
A team of analysts from the investment banking company JPMorgan, on the other hand, highlighted stocks that will benefit from the pandemic. The one that stands out is Amazon as it serves as a source of household items, cleaning supplies, and food while the physical stores are closed because of the lockdown. As the demand for online services rose, the company added about 100,000 positions. Other companies that have a buy rating are Chegg, Chewy, Netflix, Peloton, and Spotify. Most of these benefited from the work-from-home arrangements.
A one-two punch in the oil market
There has also been a combination of two blows in the oil market. The first was the price war between Russia and Saudi Arabia and the second is the decline of oil demand because of coronavirus-related restrictions in air travel. This one-two punch in the oil market is sending a shock to the economy.
The world’s biggest oil-consuming countries are the US (20.3% world share), China (13.2%), India (4.6%), Japan (4.1%), Russia (3.7%), Saudi Arabia (3.4%), Brazil (3.1%), South Korea (2.7%), Canada (2.6%), and Germany (2.5%). However, the US Energy Information Administration (EIA) cut the country’s oil price outlook this year by over 20% and it also lowers its crude production forecast. In its energy outlook, EIA assumes a lower level of liquid fuel consumption in 2020 because of disruptions in business activity and economy caused by Covid-19 and the containment measures that reduced almost all forms of travel in the country. EIA added that the impacts will be most pronounced in the second quarter this year.
Some economists assume that the world economy may bounce back in the third quarter of 2020 when the virus is already under control and people have already resumed their normal lives. Yet, scientists warn that social distancing measures may be observed for a year or more. London School of Hygiene & Tropical Medicine’s epidemiologist Adam Kucharski, who authored the book The Rules of Contagion, stated that the virus will potentially be circulating for a year or two so the measures should be considered on those timescales. The period of disruption may be for a long haul.
How long these social distancing measures will last remain uncertain and it comes at a huge cost to people’s well-being and the economy at large.