Economy

Banks Warn Clients of Double Dip Recession

Written by SK Ashby

The Congressional Budget Office (CBO) estimated that the $600 per week pandemic unemployment program was supporting between 3 to 5 million jobs by itself by giving consumers more money to spend, but that program expired on August 1st and we could see a second mini recession because of it.

I've written those words before, but that's what economists at the biggest banks are now telling their clients.

If Republicans in Congress never agree to pass a substantive stimulus bill, we could see a full double-dip recession, not just a small one. They're also telling their clients not to bet on a vaccine being widely available until next spring or summer.

[Bank of America's global economist Ethan Harris] said the economy may already be headed for a "W," or double-dip, recession. That's when the economy starts to turn down again even before it has fully recovered. The last time that happened was in the early 1980s. Economists up until recently had been predicting a V-shaped recovery, which is one that bounces back quickly. That appears to be less and less of a possibility.

In a separate note on Friday, Bank of America strategists also said they thought it was unrealistic to expect a coronavirus vaccine to be available in the U.S. or Europe until sometime in the second quarter of 2021. The strategists said that even having enough glass vials to hold the vaccine treatments could be a problem. "There are considerable development and manufacturing risks, which could compromise sufficient and timely vaccine supply," wrote BofA strategist Juan Avendano. [...]

Harris also said the U.S. economy would need as much as $1.4 trillion in new stimulus to keep the U.S. from falling back into recession.

"All of this means growth is likely to turn negative this month and only rebound if and when a major stimulus package is enacted," he wrote.

It's particularly noteworthy that banks are telling their investment clients that we need almost $1.5 trillion in stimulus to prevent a second recession because that's how much House Democrats have offered to compromise on in the immediate future.

House Democrats passed a $3 trillion stimulus bill in late May that included an extension of the Pandemic Unemployment Program and more stimulus checks, among other things, but Speaker Nancy Pelosi recently said they're willing to pass half of it now and half in January. That would mean passing about $1.5 trillion now or the amount that banks say we need to avoid a double dip recession.

Republicans did not change their tune or even react at all to last week's uptick in new jobless claims that climbed back above 1 million. It remains to be seen if new claims will increase again this week, but that would obviously be a bad sign.

By refusing to act, Republicans are baking in long-term damage to the economy that will persist for years. You can acknowledge that Senate Republicans have said they're open to passing a meager stimulus bill, but their latest proposal was trimmed down from $1 trillion to $500 billion or about one third of what economists say the economy needs.

Republicans want to cover a gunshot wound with a band-aid.