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April 5, 2020, 4:12 p.m. EDT

Coronavirus shutdowns idle 29% of U.S. economy

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By Josh Mitchell

At least one-fourth of the U.S. economy has suddenly gone idle amid the coronavirus pandemic, an unprecedented shutdown of commerce that has darkened stores from Manhattan to Gilpin County, Colo., an analysis conducted for The Wall Street Journal shows.

The study, by the economic-analysis firm Moody's Analytics, offers one of the most comprehensive looks yet at how much of the world's largest economy has shut down in the past three weeks, and which states and regions are being slammed the hardest. While the full extent of the economic damage won't be apparent for years to come, the abrupt halt of commerce caused by state-imposed closures has never occurred on such a wide scale, economists say.

Moody's analyzed every county in the U.S. and the composition of its industries to estimate how government orders to reduce activity have likely affected output. As successive states have imposed such orders, the impact has grown.

Forty-one states have ordered at least some businesses to close to reduce the spread of the coronavirus, according to Moody's. Restaurants, universities, gyms, movie theaters, public parks, boutiques and millions of other "nonessential" businesses have shut off the lights as a result. The upshot: U.S. daily output has fallen roughly 29%, compared with the first week of March, just before the spate of closures, the analysis shows.

Mark Zandi, chief economist at Moody's Analytics, doesn't believe the 29% drop in daily output will be sustained over a quarter. If it did, gross domestic product would fall at a roughly 75% annual rate in the second quarter. Mr. Zandi believes many counties will reopen before the summer and projects a 30% annualized decline in second-quarter GDP.

Most economists expect output to pick back up this summer or in the fall, as states reopen and virus cases drop. But the magnitude of the drop in daily output -- however long it lasts -- is staggering.

Annual output fell 26% between 1929 and 1933, during the Great Depression, Commerce Department data show. Quarterly output fell almost 4% between late 2007 and mid-2009, the last recession.

The shutdowns are concentrated in the most populous counties, which produce a disproportionate share of the nation's goods and services. Eight in 10 U.S. counties are under lockdown orders, according to Moody's, but they represent nearly 96% of national output.

"This is a natural disaster," Mr. Zandi said. "There's nothing in the Great Depression that is analogous to what we're experiencing now."

The analysis almost certainly underestimates the total hit because it looks only at the lost output caused by the abrupt closure of businesses to date. It doesn't consider how much output will be further lost due to additional demand-side drops from higher unemployment and the loss of household wealth on household and business spending.

Moody's estimated the impact on industries not explicitly closed by government orders, such as home construction, by using figures from industry analysts. For example, Moody's estimates that close to 90% of the hotel industry is shut down nationwide, while only 10% of financial-services output is shut down.

The current economic crisis is unlike past crises such as the 2007-09 recession, which was caused in large part by a massive run-up in household and business debt and the housing crash. That recession began with what is known as a demand-side shock -- a loss of household wealth and income that led to decreased spending, which eventually harmed the supply side, or businesses. This time, the reverse is occurring: The supply side, businesses, are closing first, which is in turn hurting households.

Mr. Zandi said the best comparison to what the economy is going through right now is a massive earthquake, or the terrorist attacks of Sept. 11, 2001, when airlines temporarily stopped flying. In the days after the attacks, U.S. output dropped by an estimated $111 billion in current dollars, Moody's estimates. By comparison this year, in the roughly three weeks since the state-imposed closures due to the coronavirus outbreak, output has fallen roughly $350 billion.

"It's like if Indiana disappeared for an entire year," Mr. Zandi said.

The analysis shows how the national economy is tied disproportionately to the fate of big metro areas. A tenth of the drop in national daily output is tied to just three counties: Los Angeles; New York County, which comprises Manhattan; and Cook County, lll., home of Chicago.

In Los Angeles County, daily output has fallen 35% due to business closures. In Manhattan, it is down 25%; in Cook County, 30%. The closures in those three counties alone have reduced daily national GDP by 10%.

Harris County, Texas, home of Houston, has posted a 27% drop.

But smaller counties are also being hit. Gilpin County, Colo., a tourist destination with a population of 6,200, according to the U.S. Census Bureau, has posted the nation's biggest drop in output -- 70%. But the decline only translates to 0.01% of the national drop.

Some counties haven't been affected, as state leaders resist forcing businesses to close. Mr. Zandi's analysis assumes Iowa counties, for example, have had no closures.

A separate analysis by Economic Innovation Group, a think tank, shows that in the tri-state region of New York, New Jersey and Connecticut, the slowdown is being driven largely by two industries: real estate and retail. In some industries, including food services like restaurants and bars, as well as arts and entertainment, output has fallen by three-quarters. The analysis relied on industry surveys, reports and economic models.

"I don't think we've ever had a parallel experiment before," said Kenan Fikri, Economic Innovation Group's research head. "Even in wartime you're allocating resources elsewhere. Here we are reducing the volume exchange that makes up the U.S. economy."

The business closures will ultimately hurt the demand side of the economy, which in turn will further dent output. The most significant evidence of that, thus far, is layoffs. Roughly 10 million people applied for first-time unemployment benefits in the two weeks through March 28, according to Labor Department figures, shattering previous records. Those workers could ultimately pull back on spending, in turn further hurting other businesses that remain open.

The U.S. lost 701,000 jobs in March, the Labor Department said Friday, the biggest one-month decline since early 2009. Most of those jobs were in restaurants and bars, though employment fell broadly, including in hotels, construction, state government, health care and retail.

Write to Josh Mitchell at joshua.mitchell@wsj.com

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