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It’s not official — not yet, anyway — but economists say the coronavirus recession is here.
The private, nonprofit National Bureau of Economic Research will make the formal call, probably next year after looking back on the data. A common rule of thumb is that recessions are characterized by at least two quarters — six months — of falling gross domestic product, though the bureau itself says they’re not always defined that way.
The Federal Reserve is acting like it’s here, committing Monday to buy as much government debt as needed to protect the economy, an unprecedented step it didn’t take during the financial crisis of 2008.
And some economists have dispensed with the formalities because of how quickly spending has slowed or stopped in major sectors of the economy.
The well-regarded UCLA Anderson School of Management last week came right out and said the recession has started in an update to an economic forecast that it made just four days earlier.
“UCLA Anderson Forecast economists say the U.S. economy has entered a recession, ending the expansion that began in July 2009,” the school announced. The revision, the first in its 68-year history, projects that the recession will last through the end of September.
At the Florida Chamber Foundation, the research arm of the Florida Chamber of Commerce, chief economist and director of research Jerry Parrish expects the National Bureau of Economic Research likely will confirm that forecast.
“I believe that when they finally come out and say that the recession started, certainly March of 2020, or maybe April, will be the month they choose as the start,” he said. “I would say, yes, we’re in a recession. ... We’ve chosen to put our economy in a recession to cut down the transmission of this virus.”
In a paper the bureau of economic research released Monday, economists at Northwestern University and the Freie Universität Berlin in Germany said cutting back on work and consumption saves lives — as many as 600,000 in the U.S. if there are “large-scale containment measures” — but make the recession caused by the epidemic worse.
So what does this mean for Florida?
On Feb. 25, Parrish raised the probability of a Florida recession in the next nine months to 24 percent.
Next Monday, when he makes a regular monthly report on the state of the Florida economy, that number will be a lot higher, he said, considering how fast business dropped off following the adoption of social distancing strategies that dispersed workers, cut sales, closed restaurants, cleared beaches and emptied airline seats.
“Nobody in America, no economist that was telling the truth, would say they expected something this quickly,” he said.
Sean Snaith, the director of the Institute for Economic Forecasting at the University of Central Florida College of Business, says no doubt that some sectors of the economy are seeing “dramatic declines” in activity as a result of measures put in place in the interests of public health.
But “there’s no recession in our history that lasted for two weeks or a month,” he said. “So will this be called a recession? I think that remains to be seen. If we’re talking about a few more weeks of these measures, and then we get a pretty rapid recovery in the wake of it, (then) no, we’re not going to see anything close to that textbook definition.”
The crisis was not “born out of the natural business cycle,” Snaith said. “The economy was very strong prior to the pandemic, the labor market was very healthy, consumer confidence was high. This comes out of the blue and presses the ‘pause’ button on various sectors of the economy, but when we get to the other side, I think the recovery of economic activity is likely to be very sharp."
While a lot of the reduction in spending has been imposed by the shutdowns, consumer confidence also will take a hit. That’s no trivial matter in an economy where consumer spending drives 70 percent of economic output.
How much of a hit we’ll know next week, when the University of Florida’s Bureau of Economic and Business Research releases its monthly consumer confidence survey. Florida consumers have been reliably optimistic, but “we are expecting that consumer confidence will drop sharply in March,” bureau director of economic analysis Hector Sandoval said in an email.
At business intelligence firm IHS Markit, principal economist Karl Kuykendall said the company projects that national unemployment will approach 9 percent by December and gross domestic product in the U.S. could decline 1.7 percent. By comparison, the U.S. economy contracted by 2.5 percent in 2009 during the Great Recession.
But in Florida, Kuykendall said the negative impact could be worse than the national average, at least in the short term.
Leisure and hospitality, retail trade, and temporary and administrative jobs comprise 34 percent of Florida’s employment, significantly higher than 28 percent for the country. Additionally, he pointed out that Florida has a large retiree population that will likely remain extra cautious for a longer period of time. That means they won’t spend as much, which becomes a drag on the economy.
“Florida is particularly exposed to the dramatic fall in travel and tourism activity," he said. "So, when we look at the employment numbers, Florida has a large share of jobs and sectors at most risk.”
The good news? This recession isn’t about grossly overvalued homes, like in 2008 and 2009, when the housing crash hit Florida especially hard and and dragged out for years. Nor does the state have a lot of jobs in other jeopardized industries, like oil drilling or auto manufacturing.
Kuykendall expects the number of coronavirus cases and quarantine measures to start to taper off in August, with economic activity picking up after that.
But he doesn’t expect spending levels to get back to pre-crisis levels until about mid-2021. That’s not the quick V-shaped recovery a lot of people want. Unlike previous recessions, he expects it will take consumers more time to overcome the fear of going to work or out shopping.
For Florida, the timing couldn’t be worse.
“We’ve never seen anything that’s shut down the state’s tourist attractions and beaches for an extended period of time,” Wells Fargo senior economist Mark Vitner said. "And it’s coming right during the spring break season.”
Tourists will eventually return, he said, but they aren’t going to come twice — once to make up for not coming now — so the state won’t be able to make up for the lost sales and hotel bed taxes.
While the economy was healthy until very recently, without a lot of overbuilding on houses and commercial projects, or overspending by consumers, Vitner questions the likelihood of a V-shaped recovery.
“Unfortunately I think this crisis is going to drag on for a while,” he said, perhaps seven months, "before the recovery begins.”
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