A deluge of poor economic news last week included the worst unemployment number since the Great Depression and contractionary PMI numbers. Overall, economic data is showing some very poor signals; the unemployment number of 14.7% is one of the worst readings in history with manufacturing and services PMIs of 40 showing poor economic activity. All eyes are now set on how states reopen and what that looks like for economic activity. Unfortunately, it appears that not only is the pain here to stay, but a V-shaped economic recovery (a rapid and sharp collapse followed by a fairly quick rebound to pre-virus economic levels) now seems highly unlikely in the U.S.

This view is driven by a number of factors. Most notably, state lock downs have already lasted longer than initially expected while reopening economies risks generating new COVID-19 outbreaks;  the U-6 unemployment rate (including discouraged workers and the underemployed) already reached 22.8% in April and may still get worse. Continued social distancing efforts will not allow for a rapid return to old habits anytime soon, and it is still too early to assess the mitigation effects from the various government bailout programs on the real economy. A number of polls indicate that a majority of Americans overwhelmingly support keeping social distancing measures in place to slow the spread of COVID-19 with recent government estimates predicting we might be facing 3,000 deaths per day in the U.S. by June 1. Put into perspective, that is closely equivalent to a 9/11-scale disaster every day. 

This all begs the question of what an economic recovery could look like. We are now seeing an alphabet soup of options for the GDP-to-time graph; it could take the shape of a U, W, Z, or even an L, a scenario where the economy never fully recovers from the shock. Many economists are now predicting more of a “swoosh” recovery, resembling that of the Nike logo, in which it takes a while to return to a 2019 level of output.