Saturday, May 2, 2020

29% of US economy shut down in April

Coronavirus shutdowns idle 29% of U.S. economy | Market Watch - Josh Mitchell:

April 5, 2020 - "At least one-fourth of the U.S. economy has suddenly gone idle amid the coronavirus pandemic, ... an analysis conducted for the Wall Street Journal shows.

"The study, by the economic-analysis firm Moody's Analytics, offers one of the most comprehensive looks yet at how much of the world's largest economy has shut down in the past three weeks, and which states and regions are being slammed the hardest. While the full extent of the economic damage won't be apparent for years to come, the abrupt halt of commerce caused by state-imposed closures has never occurred on such a wide scale, economists say.

"Moody's analyzed every county in the U.S. and the composition of its industries to estimate how government orders to reduce activity have likely affected output. As successive states have imposed such orders, the impact has grown.

"Forty-one states have ordered at least some businesses to close to reduce the spread of the coronavirus, according to Moody's. Restaurants, universities, gyms, movie theaters, public parks, boutiques and millions of other 'nonessential' businesses have shut off the lights as a result. The upshot: U.S. daily output has fallen roughly 29%, compared with the first week of March, just before the spate of closures, the analysis shows. Mark Zandi, chief economist at Moody's Analytics, ... believes many counties will reopen before the summer and projects a 30% annualized decline in second-quarter GDP....

"Annual output fell 26% between 1929 and 1933, during the Great Depression, Commerce Department data show. Quarterly output fell almost 4% between late 2007 and mid-2009, the last recession.

"The shutdowns are concentrated in the most populous counties, which produce a disproportionate share of the nation's goods and services. Eight in 10 U.S. counties are under lockdown orders, according to Moody's, but they represent nearly 96% of national output....

"The analysis almost certainly underestimates the total hit because it looks only at the lost output caused by the abrupt closure of businesses to date. It doesn't consider how much output will be further lost due to additional demand-side drops from higher unemployment and the loss of household wealth on household and business spending.

"The current economic crisis is unlike past crises such as the 2007-09 recession, which was caused in large part by a massive run-up in household and business debt and the housing crash. That recession began with what is known as a demand-side shock -- a loss of household wealth and income that led to decreased spending, which eventually harmed the supply side, or businesses. This time, the reverse is occurring: The supply side, businesses, are closing first, which is in turn hurting households....

"The business closures will ultimately hurt the demand side of the economy, which in turn will further dent output. The most significant evidence of that, thus far, is layoffs. Roughly 10 million people applied for first-time unemployment benefits in the two weeks through March 28, according to Labor Department figures, shattering previous records. Those workers could ultimately pull back on spending, in turn further hurting other businesses that remain open."

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