Social distancing requirements imposed to fight the pandemic have crushed broad swaths of the US economy, from airlines and cruise ships to restaurants and Broadway shows.
“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,” NBER wrote.
Normally, economists define a recession as consecutive quarters of negative growth. The United States already endured one quarter of a shrinking economy, with GDP dropping by 5% during the first quarter.
NBER decided not to wait for a second quarter of a contracting economy, although it is widely expected to happen during the second quarter. The body also declared that while the economy peaked on a monthly basis in February, the quarterly peak happened in the fourth quarter. That disparity “reflects the unusual nature of this recession,” NBER said.
“The economy contracted so sharply in March,” NBER said, that by the first quarter GDP and employment was “significantly below” the levels of the fourth quarter of 2019.
Hopes for a speedy return to growth
Previous recessions began more subtly, causing a significant lag before NBER declared them.
Although this recession began suddenly, there is hope that it could be relatively brief. Economists are predicting GDP will turn sharply positive in the third quarter as businesses continue to reopen and Americans begin to travel again.
The economy is benefiting from unprecedented help from the federal government.
Congress and the White House passed a record-breaking stimulus package that provided direct aid to households, forgivable loans to small businesses and bailouts to some large companies.
Wall Street is booming
And there are some glimmers of hope suggesting the worst of the downturn may already be over.
The spike in jobs was even larger relative to consensus calls from economists for another 8 million jobs to have disappeared in May. While the unemployment rate ticked down to 13.3% in May, it remains higher than at any point during the Great Recession.
The recovery on Main Street may not be as swift. Parts of the economy, including restaurants, movie theaters, airlines and cruise lines, may not be the same until a vaccine is developed.