Like my Seattle Times colleagues, I’m working from home. From the home office in my Belltown condo, I overlook the nearly empty headquarters towers of Amazon. Like thousands in this technopolis, those employees are also working remotely.
But that’s only one view. Near me is a Subway, with one worker, open for takeout. Fancier restaurants are shut, along with other businesses that can’t be handled from home. Hotels are nearly empty, occupancy rates around 9%. Construction on the nearly finished former WeWork tower is shut down; another nearby tower’s groundbreaking is in limbo.
This Janus-faced situation is borne out in the latest data.
Weekly unemployment claims hit 695,000 in October 1982, during the severe recession induced by then-Fed Chairman Paul Volcker to strangle runaway inflation. That high mark over 53 years of record-keeping wasn’t even surpassed during the worst of the Great Recession.
But the week ending March 28 saw more than 6.6 million new jobless claims nationally, the Labor Department reported Thursday. Washington state’s unemployment claims hit 181,975, far eclipsing the record set only the week before.
That’s one example of the unusually challenging economic landscape brought with the novel coronavirus. Even President Donald Trump, an early and vociferous denier, finally agrees on the need to keep a large part of the economy shut down and to practice social distancing.
Today’s sharp contraction is unlike the debt-and-hustles financial panic that caused the Great Recession only 12 years ago. It’s unlike the complex causes of the Great Depression, much less the average post-World War II recessions. In the latter case, blame ranged from blundered credit tightening by the Federal Reserve to the “Energy Crisis” of the 1970s.
This time a public health emergency has required a sudden shutdown, not only in the United States but throughout much of the world. Just what happens next is unclear.
Miguel Faria-e-Castro, an economist with the St. Louis Fed, estimates that an average of 47 million will be laid off during the quarter that just began. (In February, the broadest measurement of joblessness showed 7 million unemployed nationwide, out of a civilian labor force numbering nearly 165 million).
Over at the Atlanta Fed, the Survey of Business Uncertainty showed a huge number of firms expecting a large negative effect. Two-thirds of respondents expected sales to be hurt by the pandemic. The average sales decline of 9% may prove to be optimistic when economists are expecting a temporary decline in real gross domestic product of 30% or even more.
Manufacturing fell severely as a result of the 1918-1920 influenza pandemic. But cities that practiced the equivalent of social distancing for 120 days or more did best on the rebound (among them were Seattle and Portland).
This assertion is from a new research paper by Emil Verner, an MIT professor, and economists Sergio Correia of the Federal Reserve and Stephen Luck of the New York Fed. It hasn’t been peer-reviewed and has admitted limitations (e.g. the changed structure of the economy then and now), but still …
It gives some hope that when the pandemic peaks and the economy starts to reopen the damage might be quickly repaired. China, where the novel coronavirus began and where Beijing implemented a draconian shutdown and quarantine, is beginning to resume manufacturing.
Unlike the flu of a century ago, this time the federal government responded with a massive stimulus, totaling $2.2 trillion, including $350 billion in lending to aid small businesses. The Federal Reserve implemented an emergency interest-rate cut and other measures, such as propping up money markets and quantitative easing.
While this is welcome, we won’t know how much it helps re-entry to “normal” for months. Will consumers use their federal checks for badly needed spending, or will they save it or pay off debts?
The dangers of unintended consequences abound. For example, the Financial Times reported that private equity firms want access to the emergency small-business loans. Those are intended for companies that employ 500 or fewer. These Wall Street players own small firms at arms-length and want the Treasury Department to change rules that prevent venture capitalists and private equity from using those rescue funds.
Needless to say, that risks draining a purse that will be badly needed by, say, the local merchants at Pike Place Market or Bergman Luggage.
As I’ve written before, Seattle enjoys one of North America’s most diverse metropolitan economies. In theory, that should give it a big advantage when the economy reopens. But there are also multiple stress points, whose health depends on whether the light at the end of the tunnel is an opening or an onrushing train.
Barring the quick discovery and implementation of a vaccine, the full economy will awake in a recession of uncertain depth and length. The stock market won’t be the measure of recovery.
Economist Nouriel Roubini, the prescient “Dr. Doom” of the Great Recession, wrote recently on the Project Syndicate site, “The best-case scenario would be a downturn that is more severe than the (2008 global financial crisis) … but shorter-lived, allowing for a return to positive growth by the fourth quarter of this year.”
But he’s skeptical. With the response to COVID-19 inadequate in many advanced economies, “the risk of a new Great Depression, worse than the original — a Greater Depression — is rising by the day.”
I’m reluctant to flesh out the landscape in Seattle for even Roubini’s “best case.” Here are a few broad strokes:
Boeing is too big to fail, both as a leading exporter and defense contractor. That doesn’t guarantee the Puget Sound region won’t see job losses from falling demand if trade tensions continue with China, the 737 MAX remains grounded, and airlines continue to struggle. The company has launched a round of buyouts and predicted “a different-sized” market emerging from the pandemic.
Developers carrying heavy financing loads are at risk, which could leave projects unbuilt, uncompleted or foreclosed, further hurting city tax revenues.
A lost year for tourism, conventions and the cruise industry would represent multibillion-dollar losses and a big drag on employment, not all of it covered by the stimulus.
And some of our most cherished assets, especially the small-scale ones or those that were struggling before the pandemic, may be fatally wounded.
In a “Greater Depression” the butcher’s bill would be staggering.
Even if we avoid that worse case, this new decade will be marked by even slower growth, and tougher times, for millions than the decade that just ended. And unlike that decade, Seattle may not be the prosperous outlier.s