The devastating economic cost of the coronavirus pandemic will be crystallized in a single number Thursday. The GDP report from the Commerce Department is expected to show the sharpest contraction in modern American history in the three months between April and June.
“It’s going to be horrific,” said Nariman Behravesh, chief economist at IHS Markit. “We’ve never seen anything quite like it.”
The report is expected to show that the economy shrank at an annual rate of about 35% during the quarter as shops and factories closed their doors in a desperate effort to slow the spread of the virus. That’s about four times the drop during the worst quarter of the Great Recession.
Tens of millions of people lost their jobs this spring before a halting effort to reopen the economy began. That recovery remains incomplete and could be jeopardized by a new surge of infections.
“As soon as the virus started to take off again in key states like Texas, California, Arizona, Florida, it’s fading very rapidly,” Behravesh said.
Restaurant owner Cameron Mitchell likens the pandemic to a hurricane. What appeared to be a business rebound in June turned out to be merely the eye of the storm, and he’s now being buffeted by gale-force winds again.
“Our associates are more scared to work today and guests are more afraid to go out, so sales have dropped,” Mitchell said.
Business at his restaurants in Florida had nearly recovered to pre-pandemic levels in June but has since fallen sharply.
Other industries have enjoyed a more durable recovery, though few are back to where they were in February.
Dentists’ offices are ordinarily one of the more stable parts of the economy, but they closed for all but emergency services during much of the spring. Dental hygienist Alexis Bailey was out of work for 10 weeks before her office in Lansing, Mich., reopened at the end of May.
At first, she was reluctant to go back to work while the virus was still circulating.
“I was terrified,” Bailey said. “I was not happy to be back. But I have a job to do and I like to do it and I want to help people. We talk about how essential we are, so that’s what we’ve had to do.”
Within an hour of returning to work, Bailey said, she began to feel comfortable, particularly with the additional protective gear and other safety precautions her office has adopted.
“I tell my patients all the time I wouldn’t be here if I didn’t feel safe,” she said.
Nationwide, dental offices added more than a quarter-million jobs in May and another 190,000 in June. And there has been no shortage of patients.
She thought no one would want to come. “But we’re booked,” Bailey said. “People miss getting their teeth cleaned. They want to catch up. Every time they come in, they say, ‘This has been nice to get out of the house and feel safe and talk to somebody.’ “
Factory production has also begun to rebound, along with construction. But airlines and amusement parks are still struggling.
“It’s very much a sort of two-tiered economy right now,” Behravesh said.
The unemployment rate approached 15% in April, and in June it was still higher — at 11.1% — than during any previous postwar recession. The economic fallout was cushioned somewhat, however, by an unprecedented level of federal spending.
Wages and salaries fell sharply in April, but that was more than offset by the $1,200 relief payments that the government sent to most adults and by supplemental unemployment benefits of $600 per week.
Those government payments helped prevent an even steeper drop in consumer spending — the lifeblood of the U.S. economy — and allowed struggling families to buy groceries and pay rent.
Federal Reserve Chair Jerome Powell said Wednesday that the money “has been well spent. It has kept people in their homes. It has kept businesses in business. So that’s all a good thing.”
Those extra unemployment benefits are expiring this week, though. With coronavirus infections still threatening the recovery, additional federal support is likely to be necessary.
“Until we get the virus under control, we’re going to need more help,” Behravesh said. “Our view is that we’re not going to get to the pre-pandemic levels of economic activity until some time in 2022.”
Restaurant owner Mitchell says his business lost $700,000 in June alone. He predicts a wave of restaurant bankruptcies unless the federal government provides more relief.
“No one is looking for a handout here,” he said. “We’re looking to survive.”
He’s watching news of vaccine trials closely in hopes that eventually diners will feel comfortable eating out again in large numbers.
“I don’t think it’s the next couple of weeks,” he said. “But I tell our team, ‘Every day that goes by, it’s one day closer to the end of this thing.’ “