It’s Official!

7/1/2020

 On June 8, the National Bureau of Economic Research made it official: The United States suffered a recession due to the coronavirus crisis.

The NBER determines the occurrence of a recession due to two consecutive months of negative growth in U.S production as measured by Gross Domestic Product (GDP). The NBER business cycle dating committee stated that economic activity, including data from employment and production, peaked in February of 2020 then fell during the months of March and April, creating the recession call. 

The recession marked the end of 128 months of economic expansion which began in June 2009. The 128 months of continued expansion is the longest on record, eclipsing the mark set in the 1990s. The NBER was created back in 1854.

This is not news to many investors, who predicted that a recession would result from the coronavirus crisis. But, even though there are specific economic parameters that lead economists to declare a recession has occurred, it is still just labeling. What matters is how investors react to the recessionary impact of the coronavirus. 

The economy rebounded in late spring and the Dow Jones Industrial Average settled in above 25,000. But investors remained wary of the economic impact of the coronavirus as states went back and forth between reopening, closing again, and issuing health-related guidance.  

Spectrem’s three-month study on the financial impact of the coronavirus – Corona Crash: What Advisors Should Be Saying to Investors Now - asked investors whether they thought the American economy was headed for a recession as a result of the economic factors related to the virus. From the time the study was conducted in April to the time it was conducted in May, there was slight reduction in the positive responses to that question, from 74 percent to 71 percent.

Among the investors who responded regarding an upcoming recession, there was a decrease in concern among both Gen X investors and Baby Boomers. Among Gen X investors, 79 percent predicted a recession in April but only 71 percent did so in May. Likewise, among Baby Boomers, the recession-wary percentage dropped from 75 percent to 72 percent.

The effects of the recession are still to be determined. In the May edition of the Spectrem study, investors were asked to rate the impact of the coronavirus on the American economy on a 100-point scale, and the average response was over 84. That indicates an anticipation of a huge impact on the economy by the investors who watch the stock market and the economy with great attention to detail.

While 8 percent of investors believe the economy will need only six months to return to the level it was at prior to the coronavirus crisis, 70 percent indicate it will take at least one year, and 36 percent predict it will take at least two years to recover from the crisis.

Of course, the last recession was the Great Recession of 2008, and it took more than two years to recover from that occurrence, which was caused by improper actions taken by the banking industry toward lending practices.