MUNCIE, Ind.–A recession is likely and may come in as soon as three weeks, said Ball State University Economics Prof. Michael Hicks. He said that though the February jobs report was good, it’s not an accurate reflection of where the economy is headed, and the coronavirus is to blame.

“It’s really hard to predict, but we could be in for a fairly difficult 18 months,” he said. “The U.S. economy really decelerated in 2019. It certainly decelerated here in Indiana. Manufacturing is in or near a recession already. This impact both to factories and the service sector as a whole, it’s very easy for an economic model to deliver a measurable recession as early as the second quarter, so starting in three weeks.”

Hicks said the slowdown can be blamed not on the sickness itself, but on the efforts to keep the coronavirus from spreading.

He said the reasons can be divided into two categories: supply and demand.

“Factories in China, South Korea and parts of Japan are under quarantine. People aren’t showing up to work,” said Hicks, regarding the supply side. “The parts that are assembled here in the United States, the component parts for automobiles and transportation equipment and consumer electronics just aren’t coming.”

He predicts some factories may have to shut down within a month, and said some of them have already slowed their production.

On the demand side, he said people will stay away from cruise ships, vacations and restaurants, which he described as “the more urgent problem” over the next few months.

Hicks said while people may eventually get over their initial fears and things will get back to normal, it will likely take time and the fear, whether or not it’s an overreaction, will have done its economic damage.

He added that the risk of under reacting is greater than the smaller risk of over reacting.

 

Image by Gerd Altmann from Pixabay