On Monday, a collective “duh” sounded as the National Bureau of Economic Research (NBER) – the private research group that tracks the peaks and troughs of United States business cycles – confirmed the painfully obvious: that the coronavirus pandemic has pushed the US economy into recession.
But what exactly does that mean? And what comes next?
Traditionally, a recession is defined as six straight months or two consecutive quarters of negative economic growth. But in the US, the NBER defines it as “a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators.”
To quote the NBER: “A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough.”
According to the NBER, February marked the end of the record-shattering 128 month-long economic expansion that began in June 2009, when the economy started climbing out of the deep hole that was the Great Recession.
They were actually much faster than usual to call this downturn. Sometimes it takes the NBER more than a year after an economic contraction begins to call an official recession.
The NBER has never recorded an economic downturn that has lasted less than six months, and those records date back to 1854. But coronavirus has triggered a recession the likes of which has not been seen before.
The NBER’s Business Cycle Dating Committee said that lockdowns and the public health response “have resulted in a downturn with different characteristics and dynamics than prior recessions”, and that calling a recession now is warranted, “even if it turns out to be briefer than earlier contractions”.
No one knows for sure. But Goldman Sachs chief economist Jan Hatzius said in a note to clients on Monday that “the most striking piece of evidence that the global recovery has begun” was the surprise US jobs report on Friday.
In case you missed it, the US economy added 2.5 million jobs in May, and the unemployment rate fell. Most economists were caught off guard by the report because they were expecting more job losses totalling in the millions.
There is a big difference between the economy emerging from recession and recapturing its pre-pandemic strength.
For example, the Great Recession ended in June 2009, but it took years and years for the US jobs market to recover. Moreover, that recovery was deeply unequal. It wasn’t until December 2017 that US unemployment rates hit pre-Great Recession lows for workers of all ages, genders, major races and ethnicities, and levels of educational attainment, according to the US Bureau of Labor statistics.
And there are signs that the coronavirus recession recovery is also shaping up to be unequal. In May, the unemployment rate for white Americans declined, while the unemployment rate for African-Americans ticked up slightly.
There are a lot of unknowns surrounding that question because no one can say for sure what the trajectory of COVID-19 infections will be.
Jan Hatzius noted on Monday that there are several uncertainties surrounding a US recovery. For example, the strong May jobs report could hamper further virus-relief packages from Washington. And if COVID-19 infections rise as the economy reopens for business, he said, it could “trigger renewed government restrictions or voluntary changes in behavior that weigh on growth”.