U.S. Has Entered Recession, UCLA Economists Predict

The U.S. economy has entered into a recession that will last through the end of September, economists for the University of California, Los Angeles said on Monday in a news release.

The update of their earlier March 2020 forecast — revised at the last minute before its release last week — notes that the economic expansion that started July 2009 is now over. The repeated revisions are indicative of how quickly things are changing as the novel coronavirus, or COVID-19, spreads through dozens of countries, upending world markets, and closing down cities.

Meanwhile, the Federal Reserve announced over the weekend that it would again cut the rate, this time to near zero, in an attempt to support markets by opening the 2008 mortgage crisis playbook.

UCLA Anderson Forecast economists looked at data that included details on the rapidly changing U.S. economy as well as a review of the 1957-58 H2N2 influenza pandemic, and predicted the recession would continue through the end of September.

”Simply put we believe that when the business cycle dating committee of the National Bureau of Economic Research meets they will note that the 2020 recession began this month,” said David Shulman, a senior economist on the forecast.

This was the first time economists have updated their forecast between regular quarterly forecasts in its 68-year history.

The earlier more optimistic report had anticipated that the Fed would continue to cut its rate, but on this pointShulman also advised that "monetary policy is neither a cure nor a vaccine for COVID-19."

He wrote in that report: "It cannot reopen factories in China or Italy, and it cannot convince frightened people to travel. But it might reduce fears that something worse could happen to the economy and might alleviate the pain of stressed businesses facing supply-side shortages."

The economists have reduced the first-quarter 2020 forecast of GDP growth to 0.4%, down to -6.5% for the second quarter, and -1.9% for the third quarter. The forecast predicts a resumption of normal activity in the last quarter, with GDP growth at 4%, as the pandemic is assumed to end and supply chains repaired this summer. The 2020 year's GDP will have declined by -0.4% in full, per the updated forecast, with a full recovery expected in 2022.

California's downturn is expected to be slightly more severe due to its larger reliance on tourism and trans-Pacific transportation. Employment is expected to contract by 0.7% in 2020 with the second and third quarters contracting at the annual rate of 2.6%. The unemployment rate is expected to rise to 6.3% by the end of 2020 and is expected to increase into 2021 at an average of 6.6%. By first quarter 2021, California is expected to lose more than 280,000 payroll jobs with more than one-third in leisure, hospitality, transportation and warehousing.

If the pandemic is worse than assumed, the forecast may be too optimistic, the forecasters note. But, it could also be too pessimistic if it abates more quickly because of extraordinary measures — which they say is unlikely, but possible.

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