So much for a “V”-shaped economic recovery, where output collapses quickly and then shoots back up. As the U.S. entered its third month of the pandemic-induced lockdown economy, analysts have replaced the hopes/predictions of a quick turnaround (and its slower cousin, the “U-shaped” recovery) with a new image: the Nike Swoosh recovery, where the economy crawls out of the cataclysmic hole and takes two or three years to return to where it was prior to the outbreak.
Federal Reserve Chairman Jerome Powell could have channeled the sneaker and apparel giant when delivering a message to Congress and the Administration recently: JUST DO IT! Powell warned that the current recession could be deeper, more painful and longer lasting, unless lawmakers and the president come up with more relief money.
He reiterated comments from his press conference following the last Federal Open Market Committee meeting, urging/begging for more fiscal stimulus to blunt the impact of “a level of pain that is hard to capture in words.” While the Fed would continue to open the spigots, it only has the authority to lend, not to spend. Writing checks is the job of Congress and unless the legislative branch adds to the $3 trillion in aid already provided, “the passage of time can turn liquidity problems into solvency problems.” Translation: Just Do It, or else we are going to see a wave of personal and business bankruptcies that will amount to an L-shaped recovery: one in which the economy never fully recovers.
Some lawmakers have expressed doubt about spending more, due to debt and deficit concerns, but Powell believes “The time will come… where we can think about a long-term way to get our fiscal house in order… But this is not the time...to let that get in the way of us winning this battle.”
Economist Diane Swonk put it more bluntly, when she wrote, “Either we tame the COVID-19 virus and provide more support for households and firms ravaged by the humanitarian and economic effects, or we will suffer a deeper and longer recession…We will never look back and say we did too much. We could look back with regret and grief, wondering: Why didn’t we do more when we had the chance?”
Fresh Fed research underscored the need for action: “40 percent of those in households making less than $40,000 a year had lost a job in March.” A separate report from the NY Fed found nearly one-third of Americans expect their own household financial situation will be worse in a year, the highest level on record. The pandemic has also caused a spike in fear of job loss; historically low expectations for income and spending; and uncertainty about getting credit.
As job losses pile up, economists fear that many of these millions of workers will not be temporarily sidelined. The National Bureau of Economic Research predicts 42% of recent layoffs will become permanent. In an interview with Scott Pelley on “60 Minutes,” Powell said “There's a real risk that if people are out of work for long periods of time, that their skills atrophy…longer and deeper recessions tend to leave behind damage to people's careers. And that weighs on the economy going forward.”
It's going to take some time for full recovery – Powell cautioned, “It could stretch through the end of next year. We really don't know,” but he also reminded us, “In the long run, and even in the medium run, you wouldn't want to bet against the American economy. This economy will recover. And that means people will go back to work. Unemployment will get back down. We'll get through this.”
(Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at email@example.com. Check her website at www.jillonmoney.com)