May 11, 2020

We can now see the depth of the current recession. In April, the total number of jobs in the economy was down 13 percent. And because that estimate is based on mid-month data, we can be pretty sure that the current situation is already worse.

Meanwhile, retail sales were down 8 percent way back in March, just the first indication of a much bigger drop that has happened but that we can’t yet measure.

This isn’t an ordinary recession. It appeared swiftly, which means we think it can end swiftly too. But the very large loss of jobs makes a quick reversal impossible, even under the best circumstances. For one thing, consumers will be wary of spending on more than the necessities for quite some time. For another, many of the jobs won’t ever come back; employers will automate even more, commerce will go on-line even more, and the entire entertainment business will re-configure how it operates.

Assuming the virus will somehow be controlled (and as Dr. Fauci reminds us, right now the virus is in control, not us), real estate will not suffer a crash like we had after 2008. No subprime mortgages to foreclose, no national home price bubble to burst. But the financial fallout will affect banks and investors for years because more people will need to rent, fewer will buy a home, and more people will be in financial distress. (Credit cards will be maxed out and the consumer debt problem will mushroom.)

Jobs were lost in all sectors: 11 percent in construction, 11 percent in manufacturing, 13 percent in retail, 9 percent in business services, 7 percent in healthcare, 4 percent in government, only 2 percent in finance, but a whopping 47 percent at restaurants and hotels! Note that the biggest losses are in sectors that pay the least.