Quarantine: How Deep Will the Recession Be?

By Diane Swonk, Grant Thornton

Late last week, my colleague made a difficult decision to cancel a trip home to see her grandparents for her birthday. They are in their 90s and she didn’t want to risk contagion given the growing body of evidence that young adults can be effective carriers of COVID-19 without showing symptoms. She was later thankful given the crowds that flooded O’Hare airport when travelers abruptly returned home from hot zones in Europe.

Then the cascading events that we have seen play out in countries around the world started to unwind here. Governors declared states of emergency, universities and school districts closed, restaurants and bars closed – even fast food chains shifted to drive-through. Air travel was cancelled. Cities were shut down. San Francisco has a “shelter in place” order but compliance is spotty. The mayor of New York said a similar order could be put in place for the country’s largest city.

The Federal Reserve made an aggressive cut in rates to zero and offered up new ways to keep credit markets – the oil of the markets’ machinery – from further seizing up. Fed officials knew we were about to enter yet another stage in the quarantine that would deal a devastating blow to the economy. Layoffs have surged across everything from manufacturing to the service sector. What was first and foremost a health crisis has rapidly mutated into a financial crisis. Cash flow for many firms disappeared overnight and because of the sheer magnitude of the losses, layoffs were immediate.

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