Typically, recessions sneak up on us, like a cat in the night. As an example, the Great Recession began in December 2007, but it wasn’t until December 1, 2008 that the Business Cycle Dating Committee of the National Bureau of Economic Research formally declared that a recession had begun.
But the current economic downturn announced itself with the roar of a lion. It may seem strange that economists have already concluded that a recession has begun given that a common definition encompasses the notion of a downturn lasting for at least two consecutive quarters.
It wasn’t until March 9th that the stock market took notice of COVID-19, the virus wreaking havoc across the world. That day, the Dow Jones slipped by 2,018.43 points; its worst drop in absolute terms on record. Even then, many analysts blamed the day’s decline on a dispute between oil production titans Saudi Arabia and Russia as opposed to COVID-19.
But since that time, analysts have come to appreciate just how dire circumstances have become and how lengthy the crisis is likely to be. Nearly ten million Americans filed for unemployment benefits in the final two weeks of March. Jobs numbers for the month were also dismal, with the nation losing over 700,000 jobs on net.
As bad as that seems, it could be just the beginning should the shutdown persist into the summer months. As a result, many economists are now predicting a 25 percent decline in Q2:2020 GDP and unemployment rising meaningfully above 15 percent.
Initially, many economists failed to appreciate how this time is different. There are many who continue to try to make comparisons between the economic implication of the current pandemic and previous crises, including the global financial crisis of 2008–09. But even a $2.2 trillion dollar stimulus package can’t bring an economy back to life when so many people are precluded from working. Stimulus payments may help people pay rent or purchase groceries, but they don’t help people contribute to the nation’s gross domestic product.
Maryland Will Fare Better, Economically
It is too soon to tell how Maryland will fare from the perspective of public health outcomes. Like residents of some of the earliest hotspots like New York City and Seattle, many Marylanders live in densely-populated areas. Though Maryland has been a leader in promulgating social distancing measures, the state’s citizenry remains vulnerable as demonstrated by breakouts in a number of the state’s skilled nursing facilities.
Coming into the crisis, Maryland’s economy was humming. Unemployment sat at just 3.3 percent earlier this year, and job growth persisted. But that was then. Prior to the crisis, about 2,600 Marylanders filed for unemployment during a typical week. During the week ending on March 28, more than 84,000 Marylanders filed for unemployment.
The good news is that the structure of Maryland’s economy will render it less susceptible to economic decline than many other states. While Maryland will see participation in the recession, its large federal government, federal contracting, healthcare, life sciences, and higher education sectors are likely to prove more resistant to collapse than many private, for-profit segments.
Looking Ahead
While the initial stage of recovery from the current downturn will be sharp as people return to work and the economic engine restarts, it will also be incomplete. Complete recovery from the recession will likely take years.
One of the reasons for this is that state and local government budgets are now under severe pressure. With retail sales tax, hotel tax, and income tax revenues declining, many state and local governments are now experiencing the emergence of massive gaps in their budgets; budgets that must be balanced each fiscal year. There will also be many empty storefronts, fewer occupied apartments and office suites, and a diminished tally of employers available to jobseekers once the pandemic has passed.
The good news is that more stimulus is likely on the way. To date, there have been four stimulus bills passed by Congress: Phase 1 was an $8.3 billion bill in support of coronavirus vaccine research and development; Phase 2 was a roughly $104 billion package focusing on supplying paid emergency sick leave for some workers; Phase 3 was the $2.2 trillion stimulus; and Phase 4 was the $484 billion package to supplement Phase 3. A fifth package, one focused on investments in infrastructure, also seems probable.
