What Economic Recovery Looks Like

What Economic Recovery Looks Like

(AmericanProsperity.com) – Once again, unemployment claims exceed expectations as America comes to grip with the reality that the country’s headed for a slow recovery. On Thursday morning, the Labor Department reported 3.17 million new unemployment claims were filed last week. It’s higher than the 3.05 million expected by economists surveyed by Dow Jones but lower than the 3.845 million new claims filed the previous week.

That brings the total unemployment claims filed for the last 7 weeks to 33.5 million. We haven’t seen unemployment at this level since the Great Depression. That’s not all the bad news.

Business bankruptcies tend to lag behind unemployment claims anywhere from three to six months later. Since many companies are in lockdown, bankruptcies are more likely to happen after the emergency orders are lifted. Businesses hampered by the shutdown could use bankruptcy to seek protection from creditors or go out of business altogether. According to the Wall Street Journal, bankruptcies may even overwhelm the legal system.

In the last few weeks, large companies have already started the process. Modell’s Sporting Goods, J. Crew, Neiman Marcus, Gold’s Gym, Borden Dairy, and Pier 1 have already filed for bankruptcy. Other industries expected to file include oil, entertainment, and manufacturing.

Economy May Be Slow to Recover

In March, federal and state officials said the economy would rebound strongly when the shutdowns end. However, many economists don’t believe that’ll happen. Some say it could be anywhere from 1 to 10 years before the economy fully recovers from the damage caused by state-induced shutdowns to protect the public from COVID-19.

Minneapolis Federal Reserve Bank President Neel Kashkari said Thursday the economy faces a slow recovery unless there’s an effective vaccine or treatment for the disease. Therefore, he warned recovery would be more gradual than the quick rebound everyone had initially hoped for in March.

Kashkari used movie theaters and restaurants as examples of how social distancing will limit a business’s ability to attract larger crowds to buy a service or product. He added if a business can only serve half as many customers, it may be difficult for them to survive long-term.

The Federal Reserve is injecting trillions of dollars into the banking system at interest rates near zero. The goal is to keep credit available so businesses can borrow and sustain themselves during the pandemic. In a statement released by the Federal Reserve’s Open Market Committee, it says the epidemic “will weigh heavy on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

Not all is bad. If you’re a bankruptcy attorney or bill collector, you may be in for good times.

~Here’s to Your Prosperity!

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