Economists paint dire picture as coronavirus outbreak continues

Job layoffs, dark movie theaters and quarantined residents fearing the coronavirus and reluctant to venture beyond the front door could lead to one of the worst economic downturns in recent U.S. history, according to one area expert.

“We’re headed for a recession, if we’re not in a recession already,” said Risa Kumazawa, chair of the department of economics and finance and associate professor of economics at Duquesne University in Pittsburgh. “The duration and severity of this is going to depend on how well we contain the coronavirus. It’s not just economic crisis we’re dealing with, but a health crisis as well.”

Kumazawa recalled the Great Recession of 2008 when unemployment rates spiked to 10%. This could be comparable — or worse.

“There’s no doubt in my mind that people are going to be losing jobs and the recession is not going to be as mild as the one that we felt in 2001,”she said. “It is going to be a severe recession, not just in the United States, but globally because we’re so interconnected and all the countries in the world are fighting this at the same time.”

U.S. Treasury Secretary Steven Mnuchin warned that unemployment could reach 20%. That would approach the 25% rate of the Great Depression of the 1930s.

“But we’re not going to let that happen,” Mnuchin said on CNBC.

As of Saturday, the coronavirus death toll in the U.S. had reached 239 with nearly 18,000 known cases, according to the New York Times online tracker. Schools and nonessential businesses are closed, colleges switched to online distance learning and all sporting events have been postponed or canceled.

Many consumers are unable to spend money “even if they want to spend,” said Gus Faucher, chief economist for the PNC Financial Services Group.

“They can’t get out,” he said. “And that will have ramifications for other businesses. So, we’ll have more layoffs.

“If we think about the industries that are really going to be hurt, it’s travel and tourism, it’s manufacturing where they have big supply chains with Asia that have been shut down.”

The Pennsylvania Department of Labor and Industry has received approximately 121,000 online claims for unemployment benefits since announcing this week that workers impacted by the coronavirus could file jobless claims immediately rather than waiting one week. The state did not have figures available by metropolitan area.

With colleges moving to online classes, businesses will suffer collateral damage.

“There is going to be less need for all of the support staff,” Faucher said. “Think about all the businesses in Oakland that depend on the students from (Carnegie Mellon University) and from Pitt. Their students are not there. So, they’re going to really suffer.”

He said some people who work in consumer-oriented, customer-facing industries could lose their jobs.

“You’re going to see restaurants that either shut down temporarily or close permanently,” he said.

On the other hand, he said, “The health industry, which is an important employer in Pittsburgh, should continue to do well.”

When will it end?

“That’s a trillion-dollar question, right there,” said Carter Henderson, portfolio manager at the Fort Pitt Capital Group. “If you want to put a dollar value on (the downturn), I think you’re talking in the trillions, $1 trillion-plus of total economic activity lost.”

“My baseline assumption,” Faucher said, “is we will be returning to normal, not back to normal, returning to normal, sometime late spring, early summer.

“If that’s the case, I would expect to see a contraction in the economy through the middle of 2020, but then a rebound starting sometime in the third quarter.”

To jump-start the economy, the Trump administration and federal legislators are proposing various stimulus plans that would send money to every American.

Senate Majority Leader Mitch McConnell, R-Ky., has proposed direct payments of $1,200 per person and $2,400 for couples, with more per child.

“You’ll have more money in your pocket,” Faucher said, “both during this downturn and when the expansion (recovery) begins.”

Yet, Kumazawa said it might sound too good to be effective.

“I started to wonder if people are going to use the checks for the right reasons,” she said. “You see footage of people in Florida hanging out in beaches. Is this going to entice people to spend in the wrong places?”

Faucher and Henderson believe the economy will survive because it was in good shape before the emergence of the coronavirus.

“Before we got into this crisis, the U.S. consumer was the one leading the way,” Henderson said.

“The current expansion (recovery from the recession of 2008) is the longest period of uninterrupted economic growth in U.S. history,” Faucher said. “The U.S. economy heading into this was in pretty good shape. Consumers were seeing a good labor market. Consumers were seeing rising incomes and were increasing their spending, but also saving.”

That likely would have continued through the year without the coronavirus, he said.

“The saying among economists is expansions don’t die of old age. The expansion that we had could have lasted for another nine months, at least, another couple of years, maybe,” Faucher said. Coronavirus “is just one of those things that came out of blue.”