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The U.S. is officially in a recession. Will it actually become a depression?
By: Greg Iacurci - CNBC News - 06-09-20
Re: https://www.cnbc.com/2020/06/09/the-...epression.html

KEY POINTS - (Note: There are two reports on this posting - (Now & Then)

* Recessions and depressions are periods of significant decline in economic activity. But there’s no exact definition for either one.

* We’ve only had one depression in modern times: the Great Depression, the worst economic downturn in the history of the U.S. and the industrialized world.

* A “depression” label could be appropriate if the unemployment rate exceeds 20% for a long period of time. Economists think that’s unlikely.

With unemployment at levels unseen since the Great Depression — the worst economic downturn in the history of the industrialized world — some may be wondering if the country will eventually dip into a depression, and what it would take for that to happen.

By some metrics, joblessness — while improving — may be close to depression standards.

But the downturn will likely fall short of a depression relative to overall duration, economists said.

That’s because the causes of the current meltdown are much different and the government has more policy tools at its disposal to buoy the economy than it did in the early 20th century.

Definition of “depression”
The Great Depression is the only “depression” the U.S. has ever experienced in industrial times.

It spanned a decade, from the stock market crash of 1929 until 1939, when the U.S. began mobilizing for World War II.

There is no exact definition of a depression — just as there’s no precise definition for a recession. The latter label is determined by the National Bureau of Economic Research, often months after a recession occurs.

The U.S. officially entered a recession in February, the NBER announced on Monday, bringing an end to the longest expansion in post-World War II history.

A recession is typically defined as two straight quarters of negative gross domestic product, but the NBER has leeway to take into account the depth of a contraction, how quickly it occurs and how much of the economy is affected.

Simply put, both a recession and depression are periods of significant declines in economic activity.

But a depression is a “totally different order of magnitude,” said Susan Houseman, research director at the W.E. Upjohn Institute for Employment Research. “We haven’t seen anything like it for 80 to 90 years,” she said.

Unemployment rate
The unemployment rate is perhaps the best measurement by which to judge if we’re in a depression, according to Stephen Woodbury, an economics professor at Michigan State University.

The rate peaked at 25.6% during the Great Depression, in May 1933, according to NBER data.

This year, 21 million Americans were unemployed as of mid-May, as the coronavirus pandemic caused broad shutdowns of economic activity, according to the Bureau of Labor Statistics.

That translates to an unemployment rate of 13.3% — a slight reduction from the 14.7% rate in April, when roughly 23 million Americans were jobless.

With the exception of April, the current unemployment rate is at its highest level since the Great Depression. (The statistic includes furloughed workers, or those on temporary layoff.)

The unemployment rate has breached 10% only two other times in history, in both cases during recessions — in December 1982 and in October 2009 (which was during the Great Recession, the country’s most recent recession).

The speed with which the unemployment rate increased this year is unparalleled in modern history — rising from a half-century low of around 3.5% to its current level in just two months.

By comparison, it took more than a year for Depression-era unemployment to witness an equivalent rise, Woodbury said.

Depression-era rival?
A rate that breaches 20% and persists for several months would likely meet the definition of a “depression,” economists said.

That would mean 1 in 5 Americans in the labor force can’t find employment.

“We’re already way past [prior] recessions,” said Jay Shambaugh, an economist and director of the Hamilton Project at the Brookings Institution, a left-leaning think tank. “Do we push this to 20% and stay there for a few quarters?

“If the unemployment rate is 20% in December, I think it’s very fair to say we’re in a depression.”

Unemployment near 20%
In fact, we may closer to that level than the official unemployment rate suggests, according to economists.

For one, the BLS has hinted that the true unemployment rate is actually above 16%.

The agency determines the official rate based on a household survey. Many Americans who should have been classified as furloughed appear to have been mis-classified in the survey — thereby depressing the official unemployment rate, the BLS said.

In April, the same mis-classification occurred. At the time, the BLS suggested the true unemployment rate was around 19.7%.

However, the similarity between the unemployment rate today and during the Great Depression is somewhat “superficial,” Woodbury said.

That’s because 73% of currently unemployed Americans are temporary layoffs, or furloughs.

That means more than 15 million of the 21 million unemployed Americans are still technically attached to an employer and expect to return to their job once states and companies reopen for business.

(The number of unemployed Americans, from which the unemployment rate is derived, differs from the number of people who file for unemployment insurance. Not all those who are unemployed apply for unemployment insurance, for example.)

This level of temporary layoffs relative to the total unemployed population far exceeds any other time in modern history (with the exception of April’s figure, which was 78%). The next-closest during the post-war era was 24.4% in June 1975.

“That’s one big difference between what’s happening now and during the Great Depression,” Woodbury said. “Those job losses were permanent.

“They were jobs that were lost and gone forever.”

Of course, many of those job losses could ultimately be permanent, depending on the scope of business failures and the speed with which economic activity restarts.

Self-inflicted
Some economists also don’t believe the unemployment rate — if it officially breaches 20% — will hover at that level for an extended time, as it did during the Great Depression.

“If the unemployment rate drops down to 10% by end of the year, I think people would say this was a really horrendous recession, but not a full-fledged depression, unless it persists for a number of years,” Shambaugh said.

The current economic situation is different from the Depression era because it’s largely self-inflicted, economists said. Federal and state officials decided to shut down broad sectors of the economy to stem the spread of the coronavirus, and the economy could rebound as states and businesses begin reopening.

The Great Depression, by contrast, wasn’t self-inflicted but the result of many factors, such as a stock-market crash, use of the gold standard, deflation and the lack of any real fiscal or monetary policy from the Hoover administration to combat the crisis, Shambaugh said.

Unemployment insurance, for example, wasn’t created until 1935, in response to the Great Depression.

Doing enough?
The U.S. government was caught flat-footed in the early years of the Great Depression, since it didn’t yet have many of the economic tools currently at its disposal, economists said.

This time, federal officials have implemented relatively aggressive measures, such as various lending programs for small businesses, enhanced unemployment benefits and direct payments to Americans, to try to stave off a further catastrophe from the coronavirus, economists said.

And the economy added 2.5 million jobs in May, the largest increase on record, leading some experts to be optimistic about the prospects of a speedier recovery than previously anticipated.

“We can still debate whether we’re doing enough,” Houseman said. “It’s hard to tell when you’re in the middle of it.”

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Updated posting:

Are we in a coronavirus recession right now? Yes, and here's what that means for you
By: Dale Smith - C-Net News 07-02-20
Re: https://www.cnet.com/personal-financ...means-for-you/

New COVID-19 cases are surging across the country, the fate of a second stimulus check is unknown and benefits are running out. Here's what you need to know about the US economy now.

The recession is official, and according to some indicators, it's only going to get worse. Just as the US economy seemed to turn a corner toward recovery, a nationwide surge in coronavirus cases is threatening to derail the country's emergence from what many are now calling the "coronavirus recession."

As a result of new infections, many state governments began rolling back their reopening plans. A few have even brought back some of the very same lockdown measures that -- in an effort to stop the spread of disease -- saw a plunge in consumer and business spending and a 5% drop in production for the first quarter of 2020.

"Until the public is confident that the disease is contained, a full recovery is unlikely," said US Federal Reserve Chairman Jerome Powell in June, in testimony before the Senate Banking Committee. So, what does the road to economic recovery look like from here?

We've put together the latest news about the coronavirus recession, where to find help, what makes a recession and the government's response. Note that this story is intended to provide an overview, not to serve as financial advice. It updates frequently as the situation develops.

Latest coronavirus recession news:

* Another almost 2.2 million people (PDF) filed for state and federal unemployment benefits in the third week of June according to the Labor Department, marking the 14th straight week of over 1 million unemployment applications. Prior to coronavirus, the record was nearly 700,000 claims in 1982, the New York Times reported.

* According to the US Bureau of Labor Statistics, the unemployment rate surged to 14.7% in April, then fell to 13.3% in May (although that number is generally recognized as being misleadingly low).

* The Federal Reserve predicts US gross domestic product will shrink by about 40% for the second quarter of 2020.

* We're still waiting on new numbers to confirm two consecutive quarters of economic contraction -- the definition of "recession" used by most economists.

* According to the World Bank, humanity has experienced 14 global recessions since 1870, the last being the financial crisis of 2007 to 2009. The organization projects that this one will be the worst since World War II.

* The Federal Reserve predicts US gross domestic product will shrink by about 40% for the second quarter of 2020.

* We're still waiting on new numbers to confirm two consecutive quarters of economic contraction -- the definition of "recession" used by most economists.

* According to the World Bank, humanity has experienced 14 global recessions since 1870, the last being the financial crisis of 2007 to 2009. The organization projects that this one will be the worst since World War II.

What does it mean that we're in a recession?

Terms like "recession" and "economic depression" have specific meanings -- for the economy as well as your own pocketbook. How we define the growing economic crisis affects how we respond to it, from government leaders and bank CEOs down to individuals like you and me.

To further put the current economic climate into perspective, we provide a look at what economists typically mean when they use terminology like "recession" and "depression" and what the consensus is regarding the current financial landscape.

A leveling off of the pandemic by either a SARS-CoV-2 vaccine or an effective treatment for COVID-19 (or both) may be the most obvious solution, but that will take time. Meanwhile, as states and countries slowly emerge from lockdown, some analysts anticipate a swift reversal of the current downward economic trend as a result of businesses reopening and the lifting of stay-at-home restrictions.

How the government has tried to bolster the economy

The $2 trillion stimulus package passed as part of the CARES Act in March represents the US government's first attempt at thwarting a recession. The economic relief law included stimulus payments of up to $1,200 for most US taxpayers, as well as a loan program for businesses to keep paying their employees.

A debate over second stimulus check is currently working its way through Congress, but still appears a long way off from being finalized. Meanwhile, the Federal Reserve has indicated it will continue to hold interest rates close to 0% for the foreseeable future, which often has the effect of encouraging more borrowing, which leads to more spending -- and more spending generally improves the economy.

Finally, doctors and scientists are racing to develop either a vaccine, a COVID-19 treatment or both. Several vaccine candidate have shown promise in human trials. Even so, it may still be another year or longer before anything is approved for widespread use. The development of a coronavirus vaccine is fast-paced and details change daily.

Recession vs. depression: What's the difference anyway?

Recession: Most experts agree that a recession happens when the economy shrinks for at least two fiscal quarters in a row -- in other words, six months. This is measured by gross domestic product, or GDP, which is a number that represents the total value of goods and services produced within a country -- every car built, every hamburger sold, every lawn mowed and so on. A recession, then, is a period of at least six months when that number goes down instead of up. When GDP climbs back to prerecession levels, the recession is over.

Depression: A depression is far more uncommon and longer lasting. In the last 166 years, there have been 33 recessions and only one depression. Think of a depression as two or more recessions linked together with no economic recovery in between. The Great Depression of the 1930s is the most recent and well-known example. Economic depressions last years as opposed to months. After dubbing the current situation "the first global economic depression of our lifetimes," Time magazine defines economic depressions as "global, much worse than typical recessions, and their impact on both the economy and society last far longer."
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Personal note: Neither sound good to me. I can only hope we can make it through either without too much grief.

Boats