U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

Thanks for posting this comment. I know it sounds trite, but I’m sending well wishes your way, hoping you and your loved ones make it through this crisis as minimally impacted as possible.

I think you likely see the big picture better than others. The economy is absolutely crushed. That the markets go up must be especially frustrating to those not able to partake in any gains. My take on the market is that it will go up on good or bad news for the moment. Going up on good news is self explanatory, going up on bad news could be related to speculation that the Fed and Congress will pump even more money into the economy —- the wealthy expect to be propped up by the government as they were in the great financial crisis.

My cynical take on this is that the rich expect to get richer, no matter the outcome, and are investing accordingly. My question is how much, if any, social unrest this will lead to.

Startups are having massive layoffs right now, and each week bring companies further and further down the chain lay people off. I strongly suspect we'll see more major layoffs next week.

Most big tech companies are driven by either consumer spending and advertising. Before 2008 at lot of these companies still had not capture their full market share, so even in a recession there was room for growth. Now profits in these companies are based on market dominance. Even the big names will likely take a hit as the severity of this recession starts to take hold.

Finally in the Bay Area there's the looming problem that huge amounts of everything is paid for in RSUs (restricted stock units). The more ridiculous those total compensation packages may seem to outsiders the more they are built up from RSUs. In theory you should just live off base salary and RSU are the (very thick) icing on the cake, but this is unrealistic in SV. This stock part of the compensation goes a long way to paying for the insane housing in that region. Stocks drop and instantly Bay area income does to.

Tech will be effected, but a combination of naiveté and denial make conversations here seem like tech is safe.

Don't settle for this. My niece had her car repossessed 3 weeks ago. They said for $18k cash she could have it. We told them to pound sand. She's borrowing cars and getting rides, but next week she'll have a decent car, and I'm going to record a lien on it with the county so nobody can take it if things get worse and she has to declare bankruptcy.

Make them an offer: for $1000 cash, you'll park it in the driveway, unlocked, with the keys in the visor on any day they want to schedule. You're going to buy it back at the auction for 1/3 of what you owe. Or they can work with you, politely. If they take your car, they're just as screwed as you - possibly more so. The used car market is a bloodbath and they all know it's going to be far, far worse in 6 months.

The rich get richer because they know how to take advantage of situations like this. As a diesel tech, you almost certainly have the knowledge to nurse an old beater along and take advantage of your lenders weakness. Please do it.

I think this is possibly the single biggest long term problem we're going to face as a result of all this. Economic recessions will come and go. But missing 5/8ths of a school year is going to be absolutely devastating for this generation of kids. They will be left permanently behind without a serious concerted effort by every school district to make up for lost time. The bar (which is already dismally low) will have to be lowered further for them to graduate, and how/when will it ever be raised back again?

I think a lot of HN readers are simply unable to believe such a thing can occur; the recessions of the past thirty years were mild compared to what's happening right now. Personally, I'm absolutely terrified.

This is something I see from coverage of "lock-down protesters." There's a concentration of imagery, so bad associations can be made, pandering to those with left-leaning viewpoints. The underlying message is, "see, we don't have to pay any attention to the ravings of these crazy deplorables."

Such patterns were also at play in the media coverage of minorities in the 1900's and early 20th century. They're just being used by a different set of people with different directional vectors.

What you have to remember, is that a lot of people have been given this "deal:"

How about you have a period of unplanned, involuntary unemployment with little prospect of finding alternative employment in your areas of expertise? Okay, thanks, bye!

The top is, well, obviously, useless.

State leadership is all doing different things, which is, in some ways, a good thing, but I don't hear much in a concrete way about what the plan is to address this all over the next 12-18 months. We hear a lot about when we'll "open things back up" or phased re-openings, but nothing whatsoever about a strategy -- THESE are the tests we'll use, THIS antibody test to let people work THOSE jobs, THIS kind of contact tracing.

I'm not quite sure if the states are hoping the federal government will come out with some unifying strategy/process/materials/procedures at some point, or what, but it sure ain't happening.

A lot of people care. Many of those who care believe that the situation we're in right now is caused (or at least greatly exacerbated) by incompetent leadership at the national level, but unfortunately that view is not shared by a substantial fraction of the American people, and against that kind of headwind there is only so much we can do.

So it's not that it was being dismissed as not significant before this but, rather, it hadn't been going on long enough yet to officially be called a recession.

Retail like that is very underrepresented in the stock market, so those losses wouldn't be reflected.

https://www.principles.com/big-debt-crises/

Basically when money printer goes brrr then prices of financial assets tend to go up. The unfair bit about this is that these kind of assets are mostly owned by the rich, which makes the wealth gap even bigger.

The bigger picture is not any more visible from a STEM job. I haven't left the house aside for a jog in at least a month, and I work from my kitchen. I am living in a smaller bubble than ever, the only thing I'm missing is a hamster wheel. Wait, no, there's already a treadmill in the basement.

I hope online shopping is helping the shipping industries limp along, if only a little.

1) Have you tried the IRS website to check the status of your payment? My status finally flipped from "GO F YOURSELF" to "Please give us your bank information"

https://www.irs.gov/coronavirus/get-my-payment

2) As your hours are cut, you may qualify for Unemployment from your state under modified rules from the CARES act, have you applied?

Over time the more tourist-serving towns seemed to recover.

I am pessimistic that we're heading for the same situation again. The companies that the stock market cares about will recover, we will all go on pretending that things are back to normal. Meanwhile there will again be large swaths of the population in dire straits.

Here in the UK if you said you were going to buy a car, most people would instantly assume you mean second hand. There's not much of a culture of buying or leasing new cars here, and even less of leasing cars that you really can't afford (outside of petrolheads anyway)

Hope better days for you man, but those other jobs in leisure sector will not recover for a long time unfortunately. Do you think that they can somehow use the itnernet to keep businesses alive?

I don’t want anyone to have to put themselves at risk of catching covid in order to survive. And, the survival of working class people has to be placed above the convenience of upper middle class people who want a haircut or to go to fuddruckers.

At the same time, working class people are the ones who will suffer first and most from an economic downturn. So if they want businesses reopened, you can hardly blame them.

I think we need ubi, right now. Can’t think of any other solution.

In a lot of areas, schools are still open to serve breakfast and lunch to kids, school buses are dropping off food, and in states like mine, half the families are getting extra cash for food right now. Families will receive $193.80 total for March and April for each eligible K-12 student, and another $182.40 total for May and June.

Having tasted some of the bitter existence out there, it felt needlessly cruel. In a land of abundance, there's really no reasonable explanation for anybody going hungry, being without shelter, live in dilapidated conditions, fear one's neighbors, fall into irrecoverable debt for healthcare, or any of the million ways that poverty ruins people.

I've been down and out in the U.S., where whole neighborhoods were struggling. It's enough to drive one crazy. Much respect to those able to rise above (or just hang on) and still manage to keep their spirits up.

Mass media and journalism often feel way out of touch with the day-to-day realities on the streets. Much of the time they're in the business of shaping the public narrative, rather than giving people a voice or reporting the truth.

Some businesses will fail (for whatever reason). New ones will step in to fill the void-- perhaps very similar ones, or ones somewhat similar to those they replace.

I think of it as economic evolution.

The world outside of those businesses has evolved-- if those businesses and their management are not simultaneously evolving, then they risk being left behind.

I think the covid-19 situation has exposed weaknesses in the economy, which will be shored up-- but not without painful economic corrections.

"No one seems to care" Eh, the reality is that the owners, families, and adjacent/partner/affiliate companies may care. Other people care-- about other things which are higher priorities from them (things which you may not be aware of).

Ultimately, those businesses may have failed in part because their owners/management didn't care enough to evolve their skills and offerings to what is in demand in the economy (outside of the impact from covid, of course).

To be honest, if you really want to understand economics, you might not be trained to the degree necessary-- i.e. diesel mechanic does not equal knowledgeable economist. So, you are allowed to have an opinion, but others like myself might remind you that it is not a qualified economic opinion, but rather the opinion of a mechanic.

For example-- Do you take investment or other economics advice from your local mechanic? Do you think others would? I certainly wouldn't. As such, if I were a mechanic, I would not have confidence in my assessments of economic situations-- instead I would read the thoughts of those who I am confident are knowledgeable on the topic.

Assertions are easy to make. Valid assertions depend on knowledge, experience, data, perspective, etc.

People don't want lockdown to stop because they need to go to their hairdresser, or because they need to go hangout at the pub, or whatever idiotic reason these privilege a-holes put in their tweets. People want to get back to work, because they need money, to have a roof above their head. To feed their kids.

Edit: Just to clarify because I see a lot of misunderstanding in the replies: I am not advocating to end the lockdown. I am criticizing the tone deaf, patronizing, rude, caricatural comments attacking people who want to end it to get their paycheck back.

That's awful. I know some localities have "paused" evictions and payment "holidays," but there's been a lot of unevenness. Frankly, I think there should have been a national to that effect, so there'd have been uniformity and no gaps.

Feedback welcome.

You don’t think that describing poor kids who cannot go to school and likely cannot afford to eat on their own as packs of feral dogs is problematic at all?

We need to begin opening our country back up and implementing more targeted lockdowns and isolations for the most vulnerable.

Not only will this bring us to herd immunity faster, we will have a huge pool of recovered people available to donate plasma antibodies to those suffering from the virus.

Taking the recent deluge of antibody test data that's been released in the last few weeks from around the world indicating infection rates are far higher than official numbers indicate and the growing threat of economic misery for tens of millions, this is the best way forward.

It is clearly not, otherwise that 4.8% would be a much bigger number. Hyperbole doesn't help here.

No one claims things are good. A global pandemic is a disaster any way you cut it. We're all affected, some much more than others, and we all have to help. But there's no magic wand we can wave where we all go back to work, either.

Even "essential" industries are affected. Very few people want to go to a crowded restaurant or theater right now, lockdown rules or no. Almost no one wants to travel on an airplane. That's just not coming back until we get the disease under control, and releasing lockdowns pushes that date farther into the future.

Remember the disease is disruptive all by itself. We have something like 25% of the nation's pork butchering capacity off line right now, not due to lockdowns (obviously they were "essential") but due to actual outbreaks. And that's what we should expect everywhere we permit commerce: random, uncontained, very disruptive outbreaks.

There's no magic. This sucks. But we have to work together to fix it, and harping about only one side of the problem hurts and doesn't help.

1. People keep saying about the market being up recently, but skip the part about it still being down about 10% since the start of the year.

2. S&P is heavily weighted towards the strongest companies. Amazon, Apple, Facebook, Microsoft and Google account for 20% of S&P market cap. Most of those companies have been helped by the pandemic, or at least not hurt nearly as bad as smaller companies.

3. The market is always very forward looking. It is essentially betting that things are as bad as they'll get. I don't know if I personally necessarily agree, but if you look at countries starting to open up it's not an unreasonable bet.

If you're interested in preserving purchasing power 15 years from now, would you rather hold dollars or things today?

As a value investor, all of my theses were blown out of the water by the unprecedented Fed intervention. It is an environment in which the fundamentals are uncertain. I'm standing pat and waiting for things to make sense before moving again.

The trailing (!) S&P P/E is greater than 20 right now. The Fed is supporting prices above their historical mean/median of 15. It makes zero sense, from a financial standpoint, unless the market is pricing in substantial inflation.

If the dollar gets less valuable due to the government printing cash (or buying bonds or issuing loans they are expected to later write off), then things denominated in dollars increase, even if the real value remains unchanged.

It's hard to tell if the dollar is weakening, because most other currencies are in the exact same position.

More important than anything though is that the market right now is absolutely rigged. It's not just irrational and forward looking, it is completely rigged. Central banks all over the world are directly propping up the market up. The market has never been more of a ponzi scheme for the rich than this exact moment in time.

Also, the S&P 500 is made up of mostly large companies, many of which could benefit long term from the virus. Sure in the short term there will be a revenue hit, but in the long term if their smaller competitors can't survive that hit and they can, they will become more dominant in the future. As far as I know, small business indexes have not recovered much.

It's mostly companies that do well in any market or have a habit of surviving massive market disruptions. Sort by founded date. Almost all of them are 2000 or older.

This may also help explain why many people are terrified of the wealthy getting less wealthy: it'll cause a massive market correction as the demand for investment vehicles decreases to a more reasonable level.

A significant number of S&P 500 investors (roughly 40%) hold their investments in retirement accounts. These people are not going to sell unless forced to because they lost their jobs. If you're looking for a huge drop in the S&P 500, then keep an eye out on laws that allow for penalty-free withdraws from retirement accounts and reports that Americas are taking money out of their retirement accounts to live.

Also, there are plenty of people betting on the market going down.

The 17 min documentary from Netflix might be interesting here: https://www.youtube.com/watch?v=ZCFkWDdmXG8

So the real value of stocks is lower when adjusted for true inflation, but everyone claims inflation is minuscule / nonexistent so we can pretend that printing trillions of dollars and handing it to banks is having no effect.

Can't post this enough these days. TLDR is that the stock market is forward looking. It goes up or down based on whether conditions are better or worse than EXPECTED. If reality is in line with expectations then nothing happens. If it's better than expected stocks go up, if it's worse than expected stocks go down. The current shitty economy has already been priced in as far as can be known.

I don't think any of the market growth from this month reflects actual economic growth, most just optimism or perhaps reined-in pessimism.

The word 'recession' is essentially meaningless without knowing the impetus for it.

The 'outsourcing of Jobs to China' is a huge, permanent, secular shift that may affect stocks one way or another, but the 'coronavirus' is something I think business believes we will recover from quickly - for the most part.

Tim Cooke told Trump he thinks it will be a 'v-shaped recovery'.

But remember that this recession was 'self imposed' in the sense that we ordered businesses to shut down. We can open them again just as quickly. Obviously that won't the entirely the case but I think this is the sentiment.

When a new CEO takes over a business, he might 'write off' a bunch of crap. Even though the company loses money that quarter, analysts see it as a 'positive sign' because the company is getting rid of dead weight on their balance sheet. So like a 'one time charge' type thing.

I think markets are seeing corona as a 'one time charge'.

also, even if there is a decrease in earnings, interest rates are also lower, making stocks more attractive.

The market is still down from overall highs. We're not as far down as we were since we don't think it's going to be as bad anymore as we had feared. For 500 large cap stocks listed on US stock exchanges, perhaps about 12% better.

Also, in any recession situation, there's very high volatility. The days with highest stock gains tend to occur right before and during recessions. Even if there's a net downward trend, we'd expect things to be swinging all over the place as people keep overcompensating to the daily news

You wouldn’t bet the economy will be normal by the end of the year but you might bet others think it might.

It's going up because poor people are being forced back to work.

It's not that they're merely different, the modern stock market bears almost no relationship to "the economy". It's HFT algorithms all the way down.

This is the most optimistic market participants (bulls) buying at low prices and creating momentum that others follow.

Waiting for them at higher prices are the pessimists (bears) ready to sell into the rally.

Since there really hasn't been a capitulation, where everyone who would ever sell actually sold, it's likely the bears are still in control. I think some people are mistaking the extreme volatility as capitulation.

Fed balance sheet increased about $2T, and Congress spent $2.2T so far with more to come. That's at least 20% of GDP ($20T). Optimistic forecast is that the economy shrinks like 30% of GDP, so that's a 10% net reduction in NOMINAL spending/earnings.

SPX is down like 15% from it's previous high. The market seems to expect things to return to normal next year, which is probably short-sighted, but it's a market.

The real value of any company is down because it's producing less, but the nominal price of the company is inflated by the government spending. So the price of SPX is is not insane (if optimistic), given the government's actions. No comment on whether the actions themselves are sane.

And that’s not even including the drop in travel and supply chain difficulties, which started earlier still.

Entirely possible the floor is a temporary illusion and falls out over next 3mo, but the market is betting that won’t happen (I don’t know why, I’m not an expert on ads)

Except the economy was impacted, since manufacturing in China was slowed during the first quarter.

I was also surprised recently to learn how flat earnings have been. The stock prices going gangbusters can be explained (at least partly) by earnings per share going up due to stock buybacks. If you go look, most companies have significantly fewer shares outstanding than they did in 2014.

[1] https://en.wikipedia.org/wiki/U.S._state_and_local_governmen...

If I get murdered in December, it's not super helpful to note that I was 92% alive on average that year.

Killing thousands of people in the name of the economy would also set the stage for an even longer, deeper recession...

S&P500 crashed 30% in Feb/Mar.

Why?

This policy does cause real suffering, and some would argue never really normalised the economy or led to growth for most of the economy.

We have 20%+ of the workforce losing their income (many who are living paycheck to paycheck) as well as many B2C businesses closing, so we're accumulating debt that will never be paid off.

Look, I think the pause was necessary. But economies don't come with pause buttons. We had to do something that nobody has ever done before, and the second- and third-order effects are going to include some surprises.

I'm hopeful that you're right, that we can have a quick and relatively clean recovery, back to (mostly) where we were. But I'm also nervous that it won't work...

In keeping with your analogy, what may be wrong with current economic governance is the lack of letting a recession run its course and, for example, letting big banks who gambled too much fail instead of propping them up.

The revolving door between, say, Goldman Sachs and the Dept of Treasury has something to do with this, I think.

[1]https://en.wikipedia.org/wiki/Controlled_burn

> In the United States, it is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales". In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters.

So it's not a recession unless it lasts for a while. So when the markets suddenly go down, it's not known if a recession is happening, until it's been ongoing. Since we've already been in lockdown for more of Q2 than Q1, its reasonable to expect that we're in a recession. But it's not official yet.

It's profitable to be an economic doomsayer, which is why every single week for the past 8 years someone has said that we're going to have a recession or depression. That doesn't make them right.

Saying the cure is worse than the disease shows a frightening lack of both empathy and objective reasoning. I don't want to construct a strawman, but I worry that what "reopen" people are really saying is "I don't care if X% of the US population dies - as long as I'm not one of them - if it means I can try to go back to normal."

And try is the key word there. I would argue the main thing keeping people at home is not stay-at-home orders, but fear. Correctly-calibrated, sensible fear of getting a disease that has better odds of killing you than lots of other sources of risk in modern life.

The system is entirely broken.

When things recover, a lot of people will be sinking money into late rent payments and credit card bills, not spending.

A lot of people cleared off their credit cards of anything not critical. Will I go back to the gym? Maybe. Will I turn back on Amazon Prime or half the other subscriptions I cancelled? Nope. Will I eat out as much now that I've had a month and a half of eating healthy at home. Probably not.

Apart from the people who were laid off, or spent their savings because they had no income, or lost their businesses because they couldn't pay their debts, or ... well, it's a long list.

People who think the world is just on pause and everything will bounce back to normal in a few months need to look outside of their filter bubbles.

However, I think two factors make that unlikely now. One is the inadequate, spotty government intervention. They should have strongly pressured banks and landlords to just extend mortgages and defer or suspend rent. They should have encouraged utilities and other large, stable suppliers to stretch bills. And then they should have paid workers to mostly stay the fuck home.

The other is inadequate, spotty government response to the virus. When you look at SF and Seattle vs NYC, it's pretty obvious that strong, early government intervention can make a huge difference. And when you look at S Korea vs the US, it's even clearer. If we'd had good test-and-trace capacity ready, or if we'd locked down while quickly developing it, we'd be done with things by now. But governmental half-assing of this means that we're looking at a much larger impact than is necessary.

I think the first failure means that both businesses and consumer spending will be slow to recover once the crisis is past. And I think the second failure means it's going to be a much larger crisis. So I'm now expecting a much more significant reaction than I was 6 weeks ago.

If as looks likely they trail on for months, the second order effects will mean that unemployment and misery spread from industries like travel to every other industry (for example no airlines means no advertising on travel, which means Google takes a huge hit on profits Q2, which means they freeze acquisitions, which means funds are reluctant to invest in startups as there are no exits, which means startups in every industry stop advertising, which means Google suffers more).

So recovery may not be quick unfortunately, even well after Coronavirus is mostly over.

Maybe pump up the economy with trillions of dollars in credit but doesn't this sound like a bubble waiting to pop?

But I bet you are wrong. The destruction of the energy industry will last into 2021 and that alone will drag the economy down. There are also 26 million people who have been out of work and some non-zero percentage of those people won't be able to find work when or if the national economy is full reopened. Then there is the phenomenon of people retracting from spending after big financial events.

...and people are going to be scared for a long time, probably until there is a vaccine. I saw Reuters poll yesterday that indicated 40-60% of people would not go to the movies, a concert, sporting event, conference, or other large gathering until there was a vaccine. To expect that there won't be a trickle down impact from people retreating into their homes is... optimistic.

...but I hope you're right. The pessimists (me) dominate the headlines but the optimists are right more often.

If the future is bleak, they won't have confidence, and cuts their spending, which reinforces the prophecy.

There's no way out of this loop except by massive government intervention. The great depression only ended because of WWII. Now, hopefully we don't go to war this time, maybe try going back to moon?