The economy is darkening rapidly, and on Thursday local experts said they now believe GDP will nosedive more than 20 percent in the second quarter.
That would be more than double the 8.4 percent decline in the worst quarter of the Great Recession and much worse than the 13 percent decline the same economists forecast less than two weeks ago.
The economists, Matthew Fienup and Dan Hamilton at the Center for Economic Research and Forecasting in Westlake Village, said their outlook dimmed after Thursday morning’s news that 6.6 million people filed jobless claims last week – double the previous week’s number, which itself was a record by far.
A quick bounce back they don’t see. In fact, the economists said they “now expect a deep and enduring recession” that extends into next year. “We expect the loss of more than 16 million jobs, double the number lost in the Great Recession.
“Given the plight of hourly workers, lower-income families and other economically vulnerable people impacted by the shuttering of countless small businesses, we may even experience what can rightly be called a Depression.”
They are particularly concerned because the shelter-in-place orders are closing businesses, and if those orders extend for long, they will cause small businesses to fail at a historic level. Most can’t sustain a shutdown of more than 30 days.
“Given President Trump’s announcement on March 29 that the federal government’s social distancing guidelines will remain in place until at least April 30, we fear that many American businesses will now be pushed to the brink,” wrote Fienup and Hamilton.
They also believe that Congress can do little to help. “The so-called stimulus is likely to fail because we have decided that a deep economic contraction is necessary in order to slow the progression of the disease.”
The CERF economists also have long been critics of Federal Reserve policy, believing the drive to maintain ultra-low interest rates has not only distorted the stock markets but left the Fed with little ammunition to fight the new downturn.
“It is also important to note that monetary policy makers bound their own hands before the crisis began,” Fienup and Hamilton wrote.
CERF is a part of the management school at California Lutheran University in Thousand Oaks. It performs economic modeling and last year became a contributor to the Wall Street Journal’s Economic Forecasting Survey. Fienup and Hamilton also produce the Valley Economic Forecast for the Business Journal, which was held in January.