The U.S. is officially in a recession, bringing an end to a historic 128 months of economic growth, after the coronavirus pandemic swept the country and shut down the economy.
For more than a decade, the American economy seemed to contradict the adage, “What goes up, must come down.” That ended in February, according to the National Bureau of Economic Research, the agency that identifies periods of economic growth and contraction.
The economic expansion would have turned 11 years old this month — a span unmatched in the postwar economy.
The NBER noted that the quarterly peak was the final quarter of 2019. GDP dropped by 5 percent in the first quarter of 2020, and analysts predict that the drop in the current quarter is likely to be historically steep. A tracking tool from the Atlanta Federal Reserve currently estimated a drop of nearly 54 percent for the quarter.
“March represented a huge contraction, and that contraction was significant enough that it offset the growth in January and February,” said Bankrate.com chief financial analyst Greg McBride. “That really underscores the significant and sudden stop in the economy because the lockdowns didn’t even kick in on March 1,” he said. “So, in reality, it was the last two weeks of the quarter.” The dizzying speed of the drop in those final weeks was enough to cancel out the rest of a robust quarter.
“This was a man-made recession-slash-bear-market where, in a sense, there was almost no uncertainty about what was going to happen to us. The only question was how deep would it go,” said Sam Stovall, chief investment strategist at CFRA Research.
The speed of the NBER’s announcement is another unusual dynamic. While the usual rule of thumb for defining a recession is two consecutive quarters of negative GDP growth, that’s not a hard-and-fast rule.
“In some ways, it’s not a surprise that the NBER told us we were in recession faster than any other prior time,” Stovall said.
The NBER’s Business Cycle Dating Committee explained in a statement that the extenuating circumstances surrounding this economic collapse were so historic that making an exception was warranted.
“The unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions,” it said.
Despite the speed and severity of the shock, Stovall suggested that a rebound could be swift. “It looks like we’re out of the woods because of the tremendous speed and quantity of both fiscal and monetary stimulus,” he said.