On Thursday, Bank of America issued a warning, which may affect not only the U.S. economy but the global economy in general. Investment banks warned investors recession is no longer avoidable. Moreover, the economy is already in recession.
Bank of America officially declared that the economy fell into a recession. According to the information provided by the company, the U.S. economy will shrink by 12%. Moreover, this year gross domestic product (GDP) for the full year will contract by 0.8%.
It is important to have a better understanding, why the Bank of America came to the conclusion that the U.S. economy is already in recession. The bank looked at the labor market to understand the magnitude of the economic shock.
Based on the data provided by the Bank of America, the situation on the labor market is far from being ideal. The company expects the unemployment rate to double to nearly double in the future. As a reminder, at the moment the unemployment rate is at the lowest point in more than half a century. However, by the end of the second quarter, the number of unemployed people will increase by 3.5 million.
Moreover, the coronavirus outbreak had a dramatic impact on global markets. In this situation, it is not surprising that U.S. stocks are struggling to cope with the situation.
Bank of America and Goldman Sachs
Bank of America is not the only major bank from the U.S. which is concerned about the labor market.
On March 19, a report prepared by the U.S. government showed 281,000 Americans filed for the first week of unemployment benefits last week. It means that in comparison with the previous week, that number rose by 33%. Moreover, it is the worst result since 1992.
Unfortunately, this is not the end of the story according to economists from Goldman Sachs. They predict the report for this week will be even less promising for the U.S. economy. According to economists, the report for this week will show that 2.25 million Americans filed for the first week of unemployment benefits.
If this is going to happen, this will be the worst result ever recorded. As a result, in comparison with last week, the number of people who filed for the benefits will be eight times more than last week.
Moreover, even according to a conservative estimate, more than 1 million people filed initial jobless claims this week.