ECO211 : MACROECONOMICS

ARTICLE REVIEW

“US Economy shrinks at 4.8% pace,signalling start of recession”

Prepared by :

Ezra Novy Sabin (2018408766)

Prepared for :

Sir Sheikh Junaidi Bin Sheikh Mohammad

 ARTICLE REVIEW

INTODUCTION

The article chosen is “US economy shrinks at 4.8% pace, signalling start of recession”
by Bloomberg. The article was published on 29 April 2020 (Wednesday) on 21:52 pm. In the
article, the writer used the formal and serious tone in writing since the article is about fact of
current economic condition. The thesis statement of the article is ‘the record-long U.S.
economic expansion is over after almost 11 years, with the deepest recession in at least eight
decades now under way’. The overall article directly is related to the Corona Virus pandemic
that hit the world started from Wuhan,China on November 2019 and today, 212 countries
suffers the disease.

SUMMARY OF THE ARTICLE

Firstly, the writer mention about the world’s largest economy which is US shrank at
4.8% annualized pace in the first quarter 2020(January-March). It is because of economic
activity is slowing down due to pandemic called corona virus (2019-nCov). The situations is
likely to be far more worse in the current quarter(April-June) with the analysts expecting the
economy is declining by a record amount in data going back to the 1940s. The first quarter
downturn is reported Wednesday(29 April 2020) by the Commerce Department. The main
reason led are ;-

1) The steepest drop in consumer spending since 1980.

2) The fastest decline in business investment in almost 11 years.

Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, said on Bloomberg Radio

that the economy was running normally for over 80% of the first quarter. However, US stock

futures gained hopes for a drug to fight the corona virus helping the investors to worried less

and shrug off the Gross Domestic Product(GDP) data.

 Next,the article contains about the data which reported on Wednesday, 29 April
2020 about the economy downturn for the first quarter 2020. The report consist 3 main point
which is :

a) Financial crisis and recovery

b) Consumers wary about the 2019-nCov Pandemic

c) Spending habits among consumers due to the corona virus pandemic.

Financial Crisis and recovery

The report indicates an end to an expansion that began in mid-2009 when the economy
began to recover from the financial crisis. Since then, gross domestic product swelled by US$7
trillion and unemployment had fallen to a five-decade low of 3.5%. The pain because of the
pandemic Covid19 is being felt worldwide. US government and states are debating on when
and how fast to lift restriction on companies and school. The analysts predict that the growth
after the outbreak over might be slower.

Consumers Wary

One of the way that US government take is giving their people aid packages and near-
zero interest rate. Despite all of that, the consumer still wary to hit the shops and restaurants
due to health concerns. In addition, the consumers is burdened with large debts because most
of the company and business were shut down for a while and the consumer also fear of losing
jobs. Donald Trumph, President of US also affected by the situation where his chances in the
upcoming re-election is questioned due to his ability has been decrease in running strong
economy .

Spending Habit

At the end of 2019, the consumer spending start to slow down now fell at 7.6% rate.

This can be proven by the record increase in off-premises food and beverage spending was

more than offset by the largest slump in purchases of durable goods such as autos in more than
11 years. The consumption is forecast to be much weaker since the government will tightening

the enforcement to solving the disease. Business investment is also affected, it keep getting

worse even after US-China trade war.

Opinion on the statement given

‘.… as the need to fight the corona virus forced businesses to close and consumes to stay
home’

My opinion for this statement is even though there are economy downturn and
contraction, the lockdown which forced businesses to close and consumers to stay at home is
the right thing to do. It is because if we ignore the disease and live as normal daily life, the
situation will become more worse and uncontrolable. Other than that,many problem will arise
which will lead to collapse of a country.For example, if people do not stay at home, the number
of death will increase rapidly day by day until one point where death body is everywhere. The
country at the end will use all of its financial and financial crisis happen again.

‘ The current quarter is likely to be far worse, with analysts expecting the economy to
tumble by a record amount in data going back to the 1940s.’

In my opinion, it is not impossible if the economy is going back to the 1940s. However, the
situation still can be control if all people cooperate to solving the covid-19 outbreak. The longer
the outbreak, the more economy shrinks and the longer the recession.

‘The first-quarter downturn, reported Wednesday by the Commerce Department, was led
by the steepest drop in consumer spending since 1980 and the fastest decline in business
investment in almost 11 years.’

I agree with the statement as we can see all people concern about their health as a saying
said “Health is Wealth”. The economy circle will not works without the consumers spending.
As for the investment, most of investor stop their investment in order to avoid loss because the
economy is going down.
‘Early hopes for a rapid rebound have faded with most analysts assuming a jump in
activity once the virus passes will be followed by a slower resumption of growth. ‘

I agree with this statement because after the virus passes, the consumers just comeback to
work and try to stabilized their financial back. Due to stay at home with no income, maybe the
consumers have used all of their savings to survived. Therefore, once they get back to work,
they will spending money wisely means that the economy activity will have a slow resumption
of growth.

‘Another big question is how the recession affects the re-election chances of President
Donald Trump, who lately has been pushing for removal of the constraints after losing the
ability to run on a strong economy.'

In my opinion, it is not 100% the government or the president wrong about the economy
down turn since it is due to natural events not caused by human. Therefore, it is not a strong
reason for the people of US to pushing the president of his chair.

‘Exports of services fell by the most since 1975, reflecting a decline in international

travelers coming to the U.S.’

Exports of service is one of the largest economy income in US, one of it is travel services.

Due to the Corona Virus Pandemic, many country such as Malaysia has freeze its people from

traveling to other country. As a result, there are huge downturn since 1975 because of decline

in international travelers coming to the US all of a sudden.

‘Statisticians incorporated unemployment claims, which surged to records in recent

weeks, and also assumed additional job losses not reflected in the filings.’

This statement show that many people loss the source of income. The main reason are

they who self-employed and also bankruptancy of businesses forced to dismissal of workers.
Conclusion

The Corona Virus Pandemic started to spread in the US at January 2020 and now US is

leading the world with more than 1.29 M cases confirmed and more than 76000 death reported.

In addition, there are people who doing protest to the lockdown making the situation become

more worse. As a leader of world economy, US economy shrinks at 4.8% gives a big impact to

world economy. The question is will there be a financial crisis in 2020 since the last financial

crisis 2008. The unemployment rate going up signifies of poverty rate going up as well.

Therefore, the government of US must do a prevention from the great recession to happen

again such as loosening the monetary policy, expansionary fiscal policy and ensure financial

stability.