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Newsletter: Recession Risks


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Slip Sliding Away

The U.S. and world economies look increasingly likely to slip into recession as expanding swaths of commerce shut down amid the coronavirus pandemic. Across the U.S.—the world’s largest economy—authorities this week have canceled or postponed a swelling number of commercial flights, industry conferences, music festivals, sports events and other public activities, while oil producers are being slammed by a sharp drop in crude prices. All this raises the odds the record-long economic expansion will end in coming months, Josh Mitchell and Joshua Zumbrun report.

J.P. Morgan Chase now thinks the economy will contract in the first half of this year, ending the record-long expansion that began in 2009. But the bank also expects the economy to return to rebound in the second half, assuming a “fiscal response” of $500 billion from Congress. The Institute of International Finance predicts the global economy will grow about 1% this year, the smallest gain since the global financial crisis in 2009 and a level that would likely mean many countries would fall into recession.


U.S. import prices for February are expected to fall 0.8% from the prior month. (8:30 a.m. ET)

The University of Michigan preliminary consumer sentiment index for March is expected to fall to 95.0 from 101.0 at the end of February. (10 a.m. ET)

The Baker Hughes rig count is out at 1 p.m. ET.

President Trump meets with industry executives to discuss the administration’s novel coronavirus response at 1:30 p.m. ET.

Follow the WSJ’s live coronavirus coverage here.


Call and Response

A recession has gone from possible to probable. The priority now is lessening its severity and preventing it from turning into a financial crisis, Greg Ip writes. Some actions so far:

The Federal Reserve said it would make $1.5 trillion of short-term loans available on Wall Street and purchase Treasury securities in a coronavirus-related response aimed at preventing ominous trading conditions from creating a sharper economic contraction, Nick Timiraos and Julia-Ambra Verlaine report.

European Central Bank President Christine Lagarde unveiled a modest stimulus package to shield the region’s economy from the fast-spreading coronavirus. The ECB said it would roll out cheap loans for banks and step up bond purchases under its €2.6 trillion ($2.9 trillion) bond-buying program. But the action raised concerns the central bank may be unwilling or unable to move forcefully against a shock that has ricocheted through Europe, Tom Fairless reports.

House Speaker Nancy Pelosi said House Democrats and the Trump administration were nearing a final agreement on legislation aimed at aiding Americans affected by the spread of the coronavirus. Mrs. Pelosi said the House would vote on the legislation intended to combat coronavirus “one way or another” Friday, before the chamber leaves for its weeklong recess, Andrew Duehren and Natalie Andrews report.

U.S. stocks plunged Thursday in their worst day since the 1987 crash. The Dow Jones Industrial Average fell 10%, and the S&P 500 and Nasdaq tumbled nearly as much to join the Dow in a bear market. Early Friday, U.S. stock futures and European indexes recovered some ground, while most Asian shares closed lower after a volatile session.

Oil prices picked up a tiny bit early Friday. Longer term? Russia’s oil-market war with Saudi Arabia is part of a strategic campaign to cripple U.S. shale-oil production, a powerful economic tool that increasingly allows Washington to advance its foreign policy agenda, Benoit Faucon, Georgi Kantchev and Summer Said report.

Life Moves Pretty Fast

Economists sharply cut their forecasts for economic growth because of the novel coronavirus. And then they cut them again. A Wall Street Journal survey found business and academic economists expected, on average, gross domestic product to contract 0.1% at an annual rate in the second quarter, a large downgrade from February, when they still expected GDP growth of 1.9%. But the survey closed March 10. Too soon.

Wells Fargo on Wednesday called for a mild second-quarter contraction. “The events of the past 24 hours or so have made it painfully obvious that we need to rethink this forecast,” economist Jay Bryson said Thursday. “It looks increasingly likely that the coming contraction will be deeper and more protracted than we were anticipating just a few days ago.”

Capital Economics: “We now expect GDP to fall by 4% annualised in the second quarter and stagnate in the third, with growth for 2020 as a whole slumping to 0.6%, down from our previous forecast of 1.8%,” said economist Andrew Hunter.

“Since our last downward revision to the U.S. economic forecast just over a week ago, the news has gotten worse,” J.P. Morgan Chase economist Michael Feroli said Thursday.

One of the big challenges is tracking the economy in real time. As a general rule of thumb, economists view a recession as two consecutive quarters of contraction. But it could take months to show up in data. Most likely, it would first become visible in sentiment readings, new claims for unemployment insurance benefits, and eventually in spending and investment data. Private measures tend to emerge the fastest. One recent indicator: the Morgan Stanley Business Conditions Index. In March, the survey of industry analysts fell close to the all-time low posted in November 2008.

The Sun Will Come Out Tomorrow

Apple reopened all 42 of its stores on Friday morning in China more than a month after the retail outlets were shuttered due to coronavirus in its second-most important market. The reopening of Apple stores in China is the latest example of a return toward normalcy in the nation where the viral outbreak began.


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The lockdown of Hubei province didn’t come cheap. “Based on our most conservative estimate, China suffers about 4% loss of output from labor loss, and global output drops by 1% due to the economic contraction in China. About 40% of the impact is indirect, coming from spillovers through the supply chain inside and outside China,” Virginia Tech’s Shaowen Luo and Kwok Ping Tsang write in a new paper.


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