If the Shutdown Ends on Easter, 97% of Economy will Return; End of April, 92%; How Far Will the U.S. Go?

 If the Shutdown Ends on Easter, 97% of Economy will Return; End of April, 92%; How Far Will the U.S. Go?

The U.S. economy has been largely shut down for three weeks. As expected, our economy, robust only a month ago, is now in recession.

On Thursday, the Labor Department reported that 6.6 million Americans filed initial unemployment claims last week. The consensus among economists had been 3.1 million. Michael Feroli, the chief U.S. economist at JPMorgan, told CNBC he had been expecting a “pretty gnarly number.” Their forecast had been 3.5 million.

Add to that the 3.3 million reported last week, the current number of Americans now out of work due to the coronavirus shutdown stands at 10 million.

These numbers, as one would expect, are unprecedented. Prior to this, the highest number of initial unemployment claims was 695,000 in 1982. The next highest was recorded in March 2009, during the Financial Crisis, when the number came in at 665,000.

On Friday morningthe Labor Departmentreported that nonfarm payrolls fell by 701,000 in March pushing the unemployment rate up to 4.4%. The consensus among economists surveyed by Dow Jones had been a drop of only 10,000 jobs and an unemployment rate of 3.7%. This is the first decline in nonfarm payrolls since September 2010.

Yesterday, I listened to comments from Brian Wesbury, the Chief Economist at First Trust who explained the situation in terms that all of us can understand.

Wesbury said he’s been asked frequently if we will have a “V-shaped” recovery or a “U-shaped” recovery. In other words, will the economy snap back quickly once Americans return to work, or will it be a slower, longer recovery. According to Wesbury, the answer depends upon how long the economy remains shut down and that a certain percentage of businesses will not reopen at all. He said:

If we were to open up, say on Easter, we would probably lose 3%, 4% of our businesses. So, we would open up with 97%, 96% of our economy…There are restauranteurs who are just done. They’ve closed their businesses, they’ve said they will never reopen them again.

He cited a recent study which found, on average, small businesses have about “27 days of cash on hand to last in a complete shutdown, which means the longer we go on, the more businesses we will lose.”

So, if we were to open up at the end of April instead of Easter, we’d probably have 92% of our economy left. At the end of May, 85% of our economy left. At the end of June, 75% of our economy left. And the whole point I’m getting to here is that the longer we stay shut down, the longer it will take to come back.

The more the “V” turns into a “U.”

Even in Italy where they have underinvested in health care for decades, the number of new cases vs. the cases that exist, that percent increase is slowing down…It’s peaked and that’s in Italy.

In the United States, one of the reasons our cases are going up so rapidly is because we’re testing massive amounts of new people. We have gone from a hundred tests a day to a hundred thousand tests a day. As a result, we keep finding more people. It’s not true that that’s the growth rate of the virus. It just means we’re finding more people. And the more people we can find, the more we can quarantine…and if Italy can turn, so will we.

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