POLITICS Bloomberg Businessweek March 23, 2020
31As last year drew to a close, President Trump’s
reelection prospects had never looked brighter:
Impeachment was behind him, unemployment
was at historic lows, the stock market seemed to
hit a new high every day, and Americans who gen-
erally agree on little else felt pretty great about the
state of the U.S. economy. Gallup found that 62%
rated economic conditions “excellent” or “good,”
the most in a decade. Nothing on the horizon indi-
cated cause for worry.
Coronavirus changed that within a matter of
weeks. Economic repercussions have traced the
path of the virus with astonishing speed, first rav-
aging financial markets in China, then Europe,
and finally the U.S. On Feb. 12 the S&P 500 hit a
record high; 30 days later the index had plunged
almost 30%, capped off by what was at the time
the worst single-day decline since the 1987 “Black
Monday” crash.
The timing couldn’t be worse for Trump’s polit-
ical hopes. Academic research has consistently
found that voters judge incumbent presidents based
on the state of the economy in an election year—and
that their impressions of economic performance
solidify over the spring, which means now.
“In my model and most other forecasting mod-
els, the election year economy is critical,” says Alan
Abramowitz, a political science professor at Emory
University whose election model has been among
the most accurate. “And the second quarter seems
to be what really matters in terms of shaping the
outlook of voters heading into the election.”
That bodes ill for Trump. The force and scale
of the crisis, exacerbated by the president’s initial
denial and slow federal response, paint an ugly
picture of the economic effects soon to come.
Forecasters are sharply downgrading growth
estimates and expect the brunt of the economic
damage to land in the second quarter. Goldman
Sachs forecasts that U.S. gross domestic product
will fall 5% in the second quarter; Pantheon
Macroeconomics predicts a 10% drop; and
JPMorgan sees a 14% drop.
During a press briefing on March 16, President
Trump and his coronavirus task force announced
that the Covid-19 pandemic could last for months,
and gatherings should be limited to 10 people.
While many also anticipate a bounce back late
in the year, a recession now looks unavoidable. A
survey of prominent academic economists by the
University of Chicago Booth School of Business
found that a majority expect a “major recession”
as a result of the virus. On March 17, Morgan Stanley
and Goldman Sachs declared that a global recession
is already under way. “The middle two quarters of
this year are going to be very challenging, even if
we get the spread of the coronavirus under con-
trol quickly,” says Carl Tannenbaum, chief econo-
mist at Northern Trust Corp. and a former Federal
Reserve staffer.
Although Trump may be a victim of bad timing
in having to confront an election year pandemic,
his decision to treat coronavirus as a public-
relations emergency, rather than a public health
emergency, has expanded the scale of the crisis
that’s engulfed his presidency. His early attempts
to talk up the stock market by playing down the
threat delayed the government’s response. “We
have it totally under control,” Trump insisted on
Jan. 22. “It’s going to be just fine.”
That delay, coupled with the failure to mass-
produce a reliable test, allowed the virus to spread
and compound the damage to the economy. “The
length and depth of the global economic contrac-
tion depends most importantly on whether health
officials can materially slow the spread of the virus
via a ramp-up in testing, restrictions on mass gath-
erings, and quarantines of infected people as well
as their contacts,” Jan Hatzius, chief economist at
Goldman Sachs, told clients on March 9. In the
U.S., those restrictions began to be imposed only
in the past week, when state and local officials lost
patience with the Trump administration and began
taking action on their own.
On March 16, seeing that his PR offensive wasn’t
slowing the virus, Trump struck a much direr tone.
“This is a bad one,” he said. “It’s bad. We’re going
to hopefully be a best case and not a worst case.”
Now he faces an even tougher task than he did
back in January: Limiting the spread of the virus
will entail advocating measures that worsen the
near-term hits to the economy. These include
shutting schools, restaurants, and bars and lim-
iting foreign and domestic travel. In an economy
that depends overwhelmingly on consumer spend-
ing, that will not only hurt economic growth but
will also cause mass job losses and reduced earn-
ings. Forecasting firm IHS Markit says the unem-
ployment rate could almost double, to 6%, by the
middle of next year. In discussing the need for
significant stimulus, Treasury Secretary Steven
Mnuchin told Republican senators that without
government intervention the jobless rate could soar
to 20%, Bloomberg reported.
More than 18 million Americans work in indus-
tries that will suffer from efforts to curtail the
virus, according to JPMorgan Chase economist
Michael Feroli. Major League Baseball, the National
Basketball Association, and Major League Soccer
have all suspended their seasons. Broadway and○ Share of U.S. GDP
contributed by “virus-
vulnerable leisure”
industries10%