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Whether it’s the U.S. economy or the stock market or any of his administration’s initiatives, President Donald Trump is quick to assert, ad nauseum, that “there’s never been anything like it before.”
While that claim was neither accurate nor applicable before, Trump is finally confronting a situation to which it is suited. The impact of coronavirus pandemic is something the U.S. hasn’t witnessed before. Neither is the strategy for dealing with it: mandating that businesses close and individuals stay home.
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From record jobless claims to what is likely to be a record decline in quarterly gross domestic product to record mutual fund flows, the records are piling up.
Records being broken
Here are just a few of them — economic, financial, emotional — for your consideration:
A record 3.28 million people filed for unemployment insurance in the week ended March 21, almost five times the previous record of 695,000 in October 1982. The week-to-week increase was also the largest on record — by far. Economists expect the initial claims reported this week to easily outpace last week’s.
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The initial claims data may be understating the actual number of layoffs as long phone wait times and state unemployment websites that crashed prevented some laid-off workers from filing a claim in a timely fashion.
Friday’s employment report for March is certain to understate the damage to the labor market as a result of measures implemented to contain the coronavirus. The payroll survey is conducted during the week of the 12th of the month, which was before many states ordered non-essential businesses to shut down.
The April jobs report, released in early May, should capture the magnitude of the job losses and the rise in the unemployment rate. Some economists expect that rate to reach 20%, close to the record 24.9% witnessed during the Great Depression. (The current post-war high is 10.8% in 1982.)
30% unemployment?
James Bullard, president of the Federal Reserve Bank of St. Louis, says the unemployment rate could hit 30%.
Bullard also has a dire forecast for real GDP: a 50% decline (annual rate) from the first quarter to the second. Forecasts for a double-digit decline in second-quarter real GDP are becoming the norm.
The $2 trillion economic rescue package enacted by Congress last week is the largest on record. And that may just be the beginning.
The new spending will contribute to what is likely to be the largest federal budget deficit as a share of the economy since World War II. Estimates of a deficit-to-GDP ratio in excess of 10% would top the previous post-war record of 9.8% in 2009.
The Fed’s rapid-fire response — slashing the fed funds rate to near zero, restarting open-ended quantitative easing, reinstituting lending programs from the Great Recession and introducing new ones to support market functioning — has been unprecedented.
The Fed’s balance sheet hit a new high of $5.25 trillion last week as the central bank purchased $75 billion of Treasuries and $25 billion of mortgage backed securities a day, outdoing the pace of QE in the aftermath of the financial crisis.
Financial records set
Financial markets, too, have never seen anything like this before.
It took just 19 trading days for the Dow Jones Industrial Average DJIA, +3.19% to sink 20% from a record close on Feb. 19 and enter a bear market. That’s the fastest retreat on record from an all-time high, according to Jim Bianco, president of Bianco Research.
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It took a mere three trading sessions for the Dow to stage a rally of 20% from its March 23 close, ushering in a bull market. And the Dow registered daily moves of 4% or more for eight consecutive days in March, another first, according to Bianco.
Long-term Treasury yields have set records as well, with the 10-year note yield TMUBMUSD10Y, -4.29% dipping to 0.54% and the 30-year bond yield TMUBMUSD30Y, -1.09% to 0.99%. The yield on 1- and 3-month Treasury bills slipped into negative territory last week — investors are paying a premium for safety — and traded at record low yields.
That trend was in evidence in mutual-fund flows, which set all kinds of records last week. The Investment Company Institute reported a record $153 billion outflow from long-term mutual funds and exchange-traded funds. Bond mutual funds and ETFs witnessed a record $114 outflow, more than six times the previous record, according to the ICI.
Where did all that money go?
To safety. “The outflows out of risk — bond funds, stock funds, prime money market funds that own commercial paper, muni market funds — have been huge,” Bianco said. “About $400 billion over the last two weeks. That would have been eye-popping in a year. We did it in two weeks.”
That $400 billion of risk outflows went into “money market funds that invest in government securities,” Bianco said.
Unprecedented emotions
Then there are the never-before emotional forces at work as the nation struggles to contain the coronavirus. Family members are prevented, for health safety reasons, from ministering to their loved ones who are sick or dying. School children may suffer psychological effects as a result of isolation and separation from their friends and support systems. And 2020 college graduates are facing a challenging job market with so many businesses shut down and hiring in many cases on hold.
It’s hard to remember a time when the nation’s physical health and economic health were so at odds. The goal of intentionally curtailing economic activity to satisfy public health objectives is unprecedented.
Whether this anomaly will register with a president intent on image over issues is unclear. This would be a prime opportunity for Trump to default to his favorite assertion, telling the American people that there has never been anything like this before, and be accurate in saying so.
