Skip to main content

Recession Ahead and It’ll Be Brief But Deep: The Week Ahead

The now fast-moving spread of the coronavirus disease means the U.S., like the rest of the global economies, is entering recession territory.

Unlike past downturns in 2001 and 2008, this one portends to be  the most severe yet, and could rival the Great Depression of 1929 in depth. More optimistically, many financial experts don’t expect it to last as long.

Deep, but short

“Any way you look at it, it’s now almost certain that there will be a coronavirus-triggered recession as both global supply and demand are impacted. We can expect this recession to be deep but short. The slowdown will be temporary because it’s not caused by deep-rooted problems and imbalances in the economy, rather by a wholly unexpected shock that’s gripped the world,” said Nigel Green, CEO and founder of financial advisory firm de Vere Group.

“Every recession produces a new world. This on will too,” he added. “A COVID-19 recession is likely to fundamentally shift how we live, do business and invest.”

The pandemic pushes everyone into uncharted territory.

“Any economic outlook at this point is highly uncertain. We’ve never really seen anything like this before where you suddenly have a stop. There’s no playbook to look at. [It’s about] how soon do we get a candle on this,” Jay Bryson, acting chief economist at Wells Fargo, said Thursday during an economic outlook webinar.

If efforts underway now can flatten the curve showing the spread of coronavirus infections within the next three to four weeks, then perhaps the downturn won’t be so bad, Bryson said. The governmental policy response from the federal level will matter, too. That policy response now “is coming quickly,” Bryson said.

Sarah House, a Wells Fargo senior economist who was also on the call, reminded everyone that the situation remains fluid. “We’re looking at [something] more severe than the 2001 recession, but shorter than the 2008 downturn. It depends on the progression [of COVID-19] and policy response from the government,” House said.

Related Stories

With many retailers and service providers needing to shut down, the impact on the jobs front has House expecting a “40 percent hit” to employment. Based on state reports, jobless claims could reach as many as 1 million by early as next week, she said.

Bank of America Securities on Monday said in a report that it believes initial jobless claims will exceed 240,000 in the weeks to come. Quantitative easing and even lending to non-financial firms “can help prevent markets from seizing up. We expect more of this imminently. But only Congress and the President can help stop the virus or provide support to the real economy.”

As for any bit of good news, the Bank of America investment committee is of the belief that the U.S. government has an “awesome amount” of fiscal firepower. “At negative real interest rates across the curve, governments are effectively getting paid to borrow,” the committee concluded.

Help on the way

For now, the federal government is making an effort to help small business owners and, in turn, to keep Americans employed.

“We’re going to be helping them a lot….They’re really the engine behind our country,” President Trump said Friday during an early afternoon press briefing.

Richard Hendler and Brian Friedman, CEO and president of Jefferies Financial Group, respectively, suggest government does everything in its power to keep Americans employed.

With most businesses, and essentially the entire economy, coming to a dead stop, the reduction in revenue will have an impact on payroll, resulting either in pay cuts, terminations and furloughs. “What our economy needs is funding to buy time to breathe, keep paying employees, maintain capacity and capabilities, and simply get to the other side,” they wrote in a letter Wednesday. That’s a move to avoid high levels of unemployment, as well as to prevent large numbers of businesses from being forced to shut down, liquidate or file for Chapter 11 bankruptcy court protection.

The Jefferies executives suggest a template in the form of a job protection package, essentially a loan program whereby the cost ultimately would be borne by the private sector, but financed for a time by government so that incremental credit will be available to support employment. They also suggest as a requirement for eligibility a condition that requires companies to keep their employees on payroll for the “next six months at least equal to the amount of the incremental loan, thereby assuring a version of full employment for the next six months for all companies and their people.”

They suggest using payrolls because the government already has tax records and can easily check to see if the funds are being used properly. They also suggest a similar program that could be undertaken by the Small Business Administration for smaller firms to help those in need.

“Mass bankruptcies and massive layoffs at otherwise innocent and healthy companies makes no sense. The government will have to pay unemployment to the people and, in three months, there won’t be companies to go back to so they will stay unemployed…. Mass bankruptcies beget more mass bankruptcies,” they wrote, adding that any assistance is not the same as a “bail out” of businesses. “

“This is enabling healthy companies who did absolutely nothing wrong to continue to keep their businesses intact while the world is shut down,” they wrote.

Separately, the U.S. Small Business Administration is offering up to $2 million in Economic Injury Disaster Loans for firms impacted by COVID-19.

Some states have also set up their own emergency relief programs. New York City’s Small Business Services if offering firms with less than five employees a grant to cover 40 percent of payroll costs for two months. Companies that have fewer than 100 employees and sales decreases of 25 percent or more are eligible for zero-interest loans of up to $75,000.

Seattle’s Office of Economic Development, meanwhile, is providing $1.5 million in grants of up to $10,000 to small businesses. The Michigan Economic Development Corp. plans to set up a small business relief program and allocate $10 million in grants and $10 million in loans. Chicago has its Small Business Resiliency Loan Fund where $100 million will fund low-interest loans to the city’s struggling business owners. Other state programs, as well as private resources, are available at the Small Business Relief Tracker at