Pandemic Economy: Winter Has Come
Jill Schlesinger
CBS News Business Analyst, host "Jill on Money/MoneyWatch" pods, author of "The Great Money Reset"
It’s official: the coronavirus health pandemic has become a financial pandemic. Already, tens of thousands of workers are being laid off, especially in the airline, hotel and hospitality sectors. So many people tried to file for unemployment claims, that they crashed state unemployment websites in PA, OH, KY, OR and NY.
The Labor Department reported that workers filed 281,000 jobless claims in the week ending March 14, a 33 percent jump from the week before and the numbers are likely to get much worse. Analysts from Oxford Economics think weekly claims will rise “above 1.2 million, double the previous record set in 1982,” while Goldman Sachs says it could soar to an unprecedented 2 million in the March 15-21 period, “the largest increase in initial jobless claims and the highest level on record.”
Economists believe that virus-related job losses could soar to 3 million by this summer, according to an estimate from the Economic Policy Institute and the unemployment rate will likely to peak at 6 to 8 percent. (As a point of reference, the unemployment rate peaked at 10 percent during the Great Recession, with nearly 9 million jobs lost.)
What makes this situation so scary is the suddenness with which it enveloped us. The economy essentially came to dead stop in March and is probably about to enter (if it is not already in) a recession. The question now is how long will it last and how deep will it be? Goldman Sachs has the darkest outlook, predicting a 25 percent plunge in second quarter GDP, while JP Morgan is forecasting that the U.S. economy will shrink by 14 percent in Q2. Those results would be far worse than the weakest quarter of the last recession, in the final three months of 2008, the economy contracted by 8.9 percent.
Deutsche Bank economists foresee a “severe global recession occurring in the first half of 2020,” which will “substantially exceed anything previously recorded going back to at least World War II.” Other economists are not as downbeat, with estimates ranging from a drop of 5 to 8 percent in Q2, followed by a less severe fall off of 2 to 4 percent. Of course, these are just early estimates, but you get the gist: things are going to get ugly, and fast.
When the dark times loom, it’s best to get back to basics. Start by assessing what’s coming in and more importantly, what’s going out. Typical expenses on this list should include: food, shelter, utilities, car payment, insurance, medical/pharmaceutical expenses, dependent care costs and debt payments (student loans, credit cards, etc.)
Paying for food and shelter should come first. After that, everything is up for grabs. Several cities and states are banning utility shut offs during this national emergency, so you may not have to worry if you are late and/or can't pay that expense. Additionally, many Internet service providers are suspending data caps, waiving fees and have committed to not disconnecting service to those who can't pay their bills because of the coronavirus outbreak.
As far as debt, the FDIC wants financial firms to take steps to assist customers and communities affected by coronavirus, including:
- Waiving certain fees, such as ATM fees, overdraft fees, and late payment fees on credit cards and other loans
- Increasing credit card limits for “creditworthy borrowers”
- Offering payment accommodations, such as allowing borrowers to defer or skip some payments or extending the payment due date
The FDIC also suggests that financial institutions “work with all borrowers, especially borrowers from industry sectors particularly vulnerable to the volatility in the current economic environment and small businesses and independent contractors that are reliant on affected industries.”
The key is that you have to let them know that you are one of those who might be impacted. Instead of hiding, be honest with lenders and companies that you deal with and see if they might modify the terms on existing loans so that you have a little breathing room. Try not to tap retirement accounts and preserve the money in your savings, because we don't know how long this period will last.
If you need help navigating the financial part of this national emergency, download the Jill on Money podcast, where I am providing daily updates on the situation. As always, you can send e-mails to me at: [email protected].
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