28th May 2020
Hugues Chevalier, Economist
The Covid19 crisis has precipitated the US economy into recession. During Q1 2019, the GDP has already contracted by 4.8% (q/q, annual rate) and during the Q2, the GDP could even plunge by 40%, before rebounding by 30% in the 3rd quarter. In 2020 overall, the US GDP could fall by around 6.5% (-5.9% according to the IMF). But the US could pay an even higher price than the European economies in the long term because of the consequences of the crisis on its labour market. Indeed, the huge increase in unemployment is a specificity of the American labour market and would be a handicap for the economic recovery. Unlike the other OECD countries, the partial unemployment system does not exist or hardly exists (job retention). The sudden stop of activity due to the lockdown is currently causing a real shock on the labour market with 20.5 million jobs lost in April alone and an unemployment rate which has risen to 14.7%, which is unprecedented since the Great Depression. According to the Fed, this rate could even reach quickly 25%. Between mid-March and May 14, 35.5 million Americans have applied for unemployment benefits, and more than half of them, according to the New York Times, would not get any unemployment benefits. Furthermore, according to the University of Chicago, 42% of the jobs destroyed during the past weeks will never “come back”, which means 15 million jobs destroyed. Despite the massive support from the Fed and the government, the economic long-term consequences of poor social protection in the US will be massive.