Scary Prospects for the Economy

5/18/20

The consumer sector is the biggest contributor to the GNP, accounting for about two-thirds of the total. And while the data reflecting the current quarter are limited, we got a glimpse of what to expect with the Commerce Departments release of for retail and food services spending in April — down 16.4%.

To get some perspective on the likelihood of a quick recovery of this sector (and the economy as a whole), it’s helpful to take a look at some history.

The last recession ran from December 2007 through June 2009. Retail and food services had actually peaked the month before the recession’s official start, but consecutive monthly declines didn’t set in until July 2008, and they persisted for six months. During that time, the maximum decline posted was a loss of 3.9% in a single month, and the entire peak-to-trough decline was 12%. The series bottomed out in March 2009, but it took two full years before the monthly pace of spending got back the pre-recession level.

Compared to the latest monthly decline of 16.4% in April, this history looks positively sanguine. And while we may be in uncharted territory, what little we know casts considerable doubt on the idea that we’re looking at one or two quarters and then we’ll be back to normal.

Looking ahead, despite efforts to “open up the economy,” the Coronavirus won’t allow for anything but the most gradual recovery until a vaccine is approved and widely available; and that likely means that unless Congress institutes substantial, additional fiscal stimulus, the population of households facing food insecurity, housing insecurity, and healthcare insecurity will almost certainly be growing.