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Maine could lose 61,000 jobs by June, triggered by the COVID-19 response, more than three times what was lost in the Great Recession, according to a report published Wednesday by the Maine Center for Economic Policy.
The report says, though, that more direct help to individuals and businesses from state and federal leaders could decrease those numbers.
Record-breaking unemployment claims from late March "will likely herald breakneck job losses," according to the report, which was published before the state Department of Labor announced Thursday that a record 23,761 Mainers applied for unemployment last week.
Maine lost 18,800 jobs from December 2007 to June 2009, the height of the Great Recession. Across the country, unemployment peaked at 10% in that recession's immediate aftermath; during the Great Depression in the 1930s, it peaked around 25%.
The report stresses the necessity of business closures and stay-at-home measures, in order to saved up to half a million lives, but also digs into the effect. "The spread of COVID-19 is straining the public health system while necessary measures to limit transmission, such as social distancing and widespread closures and cancellations, cause shocks to supply and demand that have dramatically reduced economic activity," it says.
The report is based on findings and predictions of a variety of economists, as well as state and national data.
Others have similar predictions. James Bullard, president and CEO of the Federal Reserve Bank of St. Louis, told Bloomberg Sunday that unemployment across the country could hit 30% during the second quarter.
Unemployment numbers will depend on businesses taking advantage of pandemic payroll relief, Bullard added. “If companies decide to do that, we will see lower unemployment and more uptake” on small-business loans.
The reports key findings include:
Sarah Austin, an MECEP policy analyst and the report’s author, said, the lessons of the Great Recession response can be applied to help mitigate the economic losses of the current crisis.
“The length of recovery and the amount of human suffering this recession causes are still within our power to control,” Austin said. “Policy choices by state and federal leaders will determine whether Mainers can afford health care, food, housing and other essentials — even if their jobs are on hold and their children’s schools are closed. They will also determine whether small businesses can cover their expenses and avoid layoffs as consumer demand shrivels. Both those goals must be met to ensure a prompt recovery once the public health crisis has subsided.”
The report says that recessions are typically defined by two consecutive quarters of negative GDP growth, but the unique circumstances of the COVID-19 crisis have spurred economists at large forecasting firms to already declare a recession based on GDP forecasts.
Economists at JPMorgan are forecasting a 10% decline in GDP in the first quarter of this year, and even after considering the effects of the recently enacted $2 trillion relief bill, a 25% decline in the second quarter. Goldman Sachs estimates a 34% decline a for the April-June quarter.
The largest quarterly GDP drop in the Great Recession was 8.4% in the last quarter of 2008. At that time, across the country, state and local governments filled about three quarters of their budget gaps with spending cuts, the report found. A conservative estimate shows those spending cuts directly reduced GDP by 0.7% in the third quarter of 2012, when per-capita spending was at its lowest.
The report posits that if federal and state policy had continued to bolster the economic recovery, jobs could have recovered faster. "[Economic Policy Institute] research indicates that if the policy response to the Great Recession had looked more like the response to the recession in the early '80s, jobs would have returned to full employment around 2013. Instead, the national economy didn’t regain its pre-recession jobs levels until the summer of 2017, with Maine one of the last states to fully recover."
After the Great Recession, the average income of the wealthiest 5% of households was fully recovered in four years, the report says. It took the middle-fifth of families nine years to return to their pre-recession average income, and the poorest families still hadn’t recovered after 11 years.
"The policy response to the Great Recession fell short of what was needed at the time. But it also failed to fundamentally rebalance the equation for working families with low wages," according to the report. "Those families had to wait longer to fully recover as a result, and were more exposed to economic headwinds caused by the current pandemic."
In a normal recession, the goal of policymakers is to increase consumer spending to get the economy growing again as quickly as possible. "But that won't work in the face of coronavirus, which punishes normal economic activity with greater transmission, infection and death," the report says.
The report concludes that further direct aid to people and businesses is necessary to help keep the economy afloat, as well as recover.
The necessary focus by policymakers on containing the spread of the virus "requires providing families and small businesses with the financial resources necessary to comply with public health experts’ recommendations to limit economic activity — to stay home as much as possible."
Policy, according to the report, "means ensuring all families can afford health care, food, housing, and other essentials, even if their jobs are on hold and their children’s schools are closed. It also means ensuring small businesses, which have lower cash reserves than large corporations, can afford to cover their expenses and avoid layoffs even as consumer demand shrivels."
Bullard, of the Fed, told Bloomberg the country should pump more money into relief, even if it increases the country's debt by trillions.
“It is a big country," he said. "We can carry 10% more debt. It is not ideal but we can certainly do it. And if there was ever a time where you wanted to do something like this, now is that time.”