Economists rush to quantify recession with wildly varying forecasts

His frankness, which contradicted his previous optimism and the view of Treasury Secretary Steven Mnuchin one day earlier that the nation could skirt this fate, rattled investors, with stocks closing 12% lower for their steepest losses since 1987.

Forecasts for the U.S. vary wildly, with some guessing economic activity could decline by as much as an annualized 5% or even 10% in the second quarter. An even harder question is how long the slowdown will last: a short, sharp shock or something lingering or nasty.

"The middle two quarters of this year are going to be very challenging even if we get the spread of the coronavirus under control quickly," said Carl Tannenbaum, chief economist at Northern Trust Corp. in Chicago and former Fed staffer.

The news cycle has delivered a cascade of increasingly alarming developments.

Trump's advice that Americans should avoid gathering in groups larger than 10 and stop eating out at restaurants came as cities banned crowds and closed clubs and bars. San Francisco Bay Area counties ordered people to stay home unless for essential needs. Major League Baseball pushed the season's open back to mid-May from late March.

Wells Fargo's acting chief economist, Jay Bryson, wrote Monday that a global downturn is imminent with GDP growth poised to fall to about 1% this year.

Economists at JPMorgan Chase & Co. said they expected a "sharp and broad based" global recession in the first half of the year, "with limited labor market damage as policy supports build and virus impact fades into midyear." In the U.S., they pencil in declines of 2% in the first quarter and 3% in the second.

A recession is typically defined as two consecutive quarters of economic contraction, thoughd in America a panel of academics are viewed as the arbiters of business cycles and so a recession can be deemed to occur if there is a short but substantial drop in activity.

It could get a lot worse, but more dire predictions wander quickly into speculative territory.

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"This situation is the first time since the 1930s where we are having a global calamity of a scale that the policy markets are just not ahead of or anticipating," Guggenheim Global Chief Investment Officer Scott Minerd said in a Bloomberg Television interview Monday. "The risk we are facing is that this thing could spiral into something akin to a global depression."

Economists at Goldman Sachs Group Inc. expect the economy to shrink 5% in the second quarter after zero growth in the first three months of the year. Those at Morgan Stanley said on Tuesday that they see the U.S. shrinking 4% in the second quarter before recoverying.

Worse still, Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note to clients that the economy could slide 10% in the April to June period before rebounding in the third quarter.

Uncertainty is so high the U.S. central bank drew praise from several commentators for taking the unprecedented step of scrapping the planned release on Wednesday of its quarterly Summary of Economic Projections, which is one of its most important communications tools.

Speaking Sunday after the Fed slashed interest rates to nearly zero, Chairman Jerome Powell said the next forecasts would probably be published in June. He warned the second quarter will "probably be pretty weak," but declined to give any concrete predictions on the outlook.

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"It really is depending heavily on the spread of the virus, and the measures taken to affect it and how long that goes on," Powell said. "And that's just not something that's knowable."

Because the environment is changing so rapidly, Powell explained that publishing forecasts "could have been more of an obstacle to clear communication than a help."

Parts of Wall Street were nearly as cautious. "It will be a negative quarter" in the U.S., said Michelle Meyer, head of U.S. economics at Bank of America Securities in New York. "But to be able to say the extent to which it will contract is virtually impossible."

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Economists were a bit bolder with global forecasts following China's release on Sunday of worse-than-expected data. Retail sales in January and February plunged more than 20% while industrial output dropped 14%.

Since the outbreak originated in China, data were treated by many as a harbinger of what's to come in other regions.

Morgan Stanley's economists said in their Tuesday report that a global recession was now their "base case" with the world expanding just 0.9% this year. That would be better than then 0.5% contraction of 2009 but worse than the slump of 2001.

JPMorgan's team forecast 1.5% growth this year, again weak enough to be called a recession.

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Several economists made clear that the extent of the economic wreckage will depend on factors such as how long the virus lasts, whether governments will loosen fiscal policy enough and can markets avoid freezing up.

While the Fed gets "full marks" for its recent response in cutting rates and moving to stabilize credit markets, Northern Trust's Tannenbaum said Congress and the White House have so far failed to act boldly enough.

"The other side of Washington really needs to step up with something as substantial in size and intelligent in design," he said.