An historic COVID-19 outbreak could bully the U.S. economy into Great Depression-esque stagnation.
IHS Markit economists on Friday forecast a historic contraction ahead, as social distancing meant to flatten the curve of the coronavirus pandemic freezes large segments of the American economic engine.
IHS Markit now estimates that gross domestic product (GDP) declined at a 3.5 percent annual rate in the first quarter and predicts a 26.5 percent annualized drop in the second quarter, bringing it to Great Depression levels and culminating in a 2020 growth rate of minus 5.4 percent year-over-year.
The projection reflects the inclusion of new high-frequency data and reports on developments in industries directly affected by social distancing, as well as new judgment on how efforts to slow the spread of COVID-19 will permeate the economy.
American industry, including the apparel and textile sectors, has been impacted and often changed by the cycles of economic downturns seen in the country and the world in the past century.
This was true of the early 1990s recession that drove apparel and textile manufacturing offshore in search of cheaper labor and costs, and during the recent Great Recession in 2008-09 that spurred a resurgence of Made in America production in the sector, as brands sought to better control inventories and use U.S.-made goods as a strategic marketing vehicle.
But this pandemic-fueled crisis is most reminiscent of the crash of 1929 that brought about the Great Depression and infiltrated virtually every aspect of American society. The early days of the Great Recession under President Herbert Hoover saw unemployment spike to 24.9 percent from 3.2 percent prior to its onset.
The election of 1932 brought in President Franklin Roosevelt and the New Deal, with the first true government-sponsored jobs programs: the Works Progress Administration (WPA), a permanent jobs program, employed 8.5 million people from 1935 to 1943, according to history.com. Between late 1929 and early 1933 when Roosevelt took office, industrial production in the U.S. declined 47 percent and real GDP fell 30 percent.
Related Stories
In comparison, Great Recession erased 2.5 million jobs and took GDP down 6 percent. Investopedia.com defines a depression as a severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts three or more years or leads to a decline in real GDP of at least 10 percent.
“The last two weeks’ startling reports on initial claims and our own service-sector purchasing managers index (PMI) support our forecast of a sharp contraction,” IHS chief U.S. economist Joel Prakken and executive directors Patrick Newport and Ben Herzon said.
“We do not expect GDP growth to turn positive until the fourth quarter, reflecting our view that activity will not begin to turn up materially until new U.S. cases of COVID-19 are driven essentially to zero, and even then, it may take some time for consumers and business to resume spending and investing in earnest,” they added.
This forecast includes the recently passed Coronavirus Aid, Relief and Economic Security (CARES) Act, but the economists said they see that more as a “preservation package” than an outright stimulus.
They said the expected recession “exhibits a peak-to-trough decline in GDP of 8.3 percent over the first three quarters of this year and a peak unemployment rate of 10.3 percent in the fourth quarter.”
Core consumer price inflation, based on the personal consumption expenditures price index, is forecast at 1.3 percent for the year and is expected to remain below 2 percent on a year-over-year basis until 2023.