In the last two weeks, nearly 10 million people applied for unemployment insurance. The March jobs report revealed a loss of 701,000 jobs—the first monthly job loss in nearly 10 years and already one of the worst monthly losses on record. Further, March’s job loss numbers are just the tip of the iceberg, as they do not capture the entire month of March, but refer only to the payroll period containing March 12, before the shutdowns accelerated significantly.

How policymakers respond now will determine the level of pain working families experience and the speed at which the economy can get back on track after the shutdown period is over. The relief and recovery packages passed since the crisis began included many good measures, but they are still too little and some provisions in these packages represent policy missteps. More relief and recovery aid will certainly be needed.

The biggest misstep taken in the earlier relief and recovery packages was allocating so much of the aid to financial rescues of large firms with insufficient conditions to ensure that jobs and wages of workers were saved. Policymakers approved over $450 billion in direct fiscal aid to this effort, with more potentially forthcoming in subsidized loans from the Federal Reserve. Yet this aid (apart from the stronger stipulations for the airline industry) is largely not tied to preserving rank-and-file workers on payrolls.

Another large tranche of aid ($350 billion) was better targeted in preserving the payroll of small firms. But this aid will likely underperform in actually saving jobs because the administrative capacity of the Small Business Administration and banks servicing small and medium-sized firms are too poor to ensure the full amount of aid reaches employers and preserves payroll.

These two tranches of aid could have been bundled and made into more direct and better administered financial relief that hinged entirely on the willingness of employers to preserve workers on payroll with the federal government financing their pay during the shutdown. This would have allowed workers to remain in the jobs they held before the coronavirus shock, and this would have helped ensure a rapid economic recovery once the public health crisis had subsided.

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This blog post is based on a particular GDP forecast from 3/31. If new and substantially different forecasts are released, we will update these numbers.

On March 15, Goldman Sachs forecast that GDP would contract at a 5% annualized rate in the second quarter of 2020. On March 20, their forecast jumped to 24% annualized contraction. And on March 31, their forecast for second quarter contraction grew to 34%. This pattern of rapid deterioration in projected coronavirus-related contraction has been true across literally every other forecaster. The logic of these forecasts of rapid and historically large collapses in GDP is easy to see. Even a 5% across-the-board contraction in consumer spending over a short period of time (say because a housing price bubble popped) can send the economy into a steep recession. But the coronavirus is causing well over half of all economic activity in some major sectors to stop dead. For example, accommodations and food service by itself accounts for 14% of all consumer spending. If economic activity in just this sector is cut in half, this alone can drive a steep recession. But, of course, other sectors are also affected and contraction in some sectors will be well over 50%.Read more