If you are currently looking for a job in America, the best way to apply is to the job center – and that is to be taken literally. All over the country, authorities are urgently looking for personnel to process the flood of unemployment benefit applications. Since the corona virus has raged, the hotlines and websites in many licensing agencies have collapsed.
It has been clear why since Thursday morning at the latest: Almost 3.3 million Americans registered as unemployed within a week. Even sober economists have been shocked by the number, which turned out to be even more devastating than expected. For a quarter of a century, he’s been commenting on the state of the US economy every day, Ian Shepherdson of Pantheon Macroeconomics said, “This is the worst data I’ve ever seen.” He expects the unemployment rate to almost double from the last 3.5 percent – and to reach double digits in the coming months. Other experts even consider an increase to 20 or 30 percent conceivable.
The upswing on the US labor market continued for nine and a half years – the corona crisis killed it within nine days. Because the economy of the superpower stands still. Restaurants, sports shops, mobile phone shops, car dealerships – everywhere else where the dollars flow, the cash register no longer rings. 200 million people in over 20 states are officially required to stay at home. In those countries that have now closed all unnecessary companies and businesses, more than 40 percent of the gross domestic product is regularly generated. America is preparing itself for a new record: the longest expansion phase in history could now be followed by the steepest crash.
“The virus dictates the schedule”
It is quite possible that the US was already in recession, central bank chief Jerome Powell said on NBC’s breakfast television on Thursday morning. As far as she knows, the presenter has never seen a Fed Chairman appear on the “Today” show before, the moderator wondered, why now? “The situation is unique,” answered Powell. The Americans were asked to forego economic activities as an “investment” in the country’s public health: “They are doing so for the public good.”
Powell’s message was obviously not only aimed at the millions of viewers who fear for their existence while sentenced to do nothing. But also to Donald Trump, who wants to force the return to economic normality by Easter. “Getting the virus under control is at the top of the agenda,” warned the world’s most powerful monetary politician. Only then could economic activity begin again: “The virus dictates the schedule.”
Most economists share this advice. If Trump makes the “180-degree turn” and removes restrictions on social interaction, “it will create chaos and confusion,” said Mark Zandi, chief economist at Moody’s Analytics: “This is the recipe for depression.” Zandi sees an “economic tsunami” rolling across America in three waves. The first hit the job market. The second would land if the owners of shares and pension plans understood that the value of their reserves had been pulverized on the stock exchange. Finally, wave three would cause the already hesitant investment activity of the companies to collapse.
It all adds up to a scenario of horror. Moody’s expects GDP to decline nearly 30 percent (annual rate) in the second quarter. However, the $ 2 billion aid package that the Senate passed on Thursday night would cushion the slump to minus 17 percent. On Friday, the House of Representatives also wants to approve aid for citizens, businesses and states.
Recovery program against “leaks in the boat”
But nobody wants to speak of an economic stimulus program, even though the planned expenditures reach almost two percent of the American gross domestic product. Because unlike the classic stimulus, this time it’s not about stopping a recession, but rather preventing many people from falling into the bottomless. The measures were not designed to get the ship going, but to “plug the leaks in the boat,” Michael Pugliese of Wells Fargo Securities told The Wall Street Journal.
The question is no longer what will be the next few months. The answer is clear: terrible. It is discussed what will happen when the worst is over. They are the letters from the alphabet of the crash: V, U or L.
The optimists are counting on the GDP curve to shoot up again as quickly as it is now falling: the V-Modell. Economics professor Tyler Cowen compares the situation to World War II. This time the virus was the enemy and if it was defeated, a post-war boom could follow. Because then the consumers would make up for all purchases now put on hold. The President of the Federal Reserve Bank of St. Louis, James Bullard, also advises the Americans not to be discouraged. The coming quarter was not the norm: “If we play our cards right and make sure everything stays intact, everyone will go back to work and everything will be fine.”
“More will be needed soon”
Others doubt that the clock can be turned back so easily. They predict a “U” recovery that an IMF economist once described as a bathtub: it is not easy to get out. But the L-scenario also makes the round, in which it does not go up for a long time after the crash. There are also good arguments for this: America’s companies and consumers are heavily in debt. Many small companies, which account for around half of employment in the United States, are likely to run out of steam.
In a survey by investment bank Goldman Sachs among 1,500 companies, one in two said that they would not survive more than a quarter of a standstill. And the crisis has started chain reactions: first the shopkeeper can no longer pay his rent, then the landlord falls behind with the servicing of the mortgages and finally a problem piles up in the bank balance sheet.
The decisive factor in the end is how long the virus will rage – and whether the Fed and the state will be able to “freeze” the time until then, as the MIT finance professor Jonathan Parker calls it. Economist Shepherdson from Pantheon Macroeconomics is skeptical that the new aid program will succeed. “Two trillion dollars is a lot,” he admits, but “more will be needed soon.”