Great Depression comparisons are depressing but this time is different

Enter the dreaded “D” word. Kevin Hassett, an economic adviser to President Trump, Sunday compared the coronavirus collapse in the US economy to the Great Depression. “This is the biggest negative shock that our economy, I think, has ever seen. We’re going to be looking at an unemployment rate that approaches rates that we saw during the Great Depression,” he said. “During the Great Recession …we lost 8.7 million jobs in the whole thing. Right now, we’re losing that many jobs about every ten days,” Hassett said. Depression comparisons are, well, depressing. And accurate. What we have seen in the past six weeks already eclipses the worst of the Great Recession when the jobless rate reached 10%. It also dwarfs the painful recession of 1982 where joblessness peaked at 10.8%. Hassett guessed the jobless rate in April stands at 16% “or even higher.” That might be conservative. March’s jobless rate was 4.4% and only caught the beginning of the jobs carnage. In the past six weeks more than 16% of the labor market filed for jobless benefits. Rough math? That’s almost 20%, a level not seen since the early 1930s. A depression is essentially a really bad recession, and this sure feels like one. First-quarter GDP this week will likely reveal a contraction in the first quarter. Forecasts for the second quarter are horrific: The economy is expected to shrink at an annualized rate of 20% to 30%, matching the worst of the Great Depression. A bit of history: The Great Depression was actually two downturns. The National Bureau of Economic Research is the official bookkeeper of booms and busts in the economy. It found a sharp downturn from 1929 to 1933, when GDP fell 27%, and again from 1937 to 1938. Most economists don’t think the economy returned to something considered “normal” until 1940 or 1941. There is an important difference today. America has a safety net this time. How well it works will decide if this is a depression in name only. “A depression is unlikely – just one hellacious second quarter followed by a choppy recovery,” says Greg Valliere, chief US policy strategist at AGF Investments. “Can Washington prevent a depression,” he asks. “Yes.” Here’s how. The Federal Reserve has announced nearly unlimited – and historic – support for credit markets. Congress has now spent trillions of dollars in rescue and bailout funds. “What I do think is as we open the economy in May and June, you will begin to see the economy really bounce back in July, August, September,” he said Sunday. “We are putting in an unprecedented amount of fiscal relief into the economy. You’re seeing trillions of dollars that’s making its way into the economy and I think it’s going to have a significant impact.”