Moody's Mark Zandi Says US Economy Might Enter Depression If Second Coronavirus Wave Begins

Moody’s Analytics chief economist Mark Zandi has warned that the U.S. economy risks a depression should individual states gamble on reopening businesses too soon.

Make Or Break Moment

Zandi, who sits on the board of MGIC, one of the largest private mortgage insurance companies, appeared on CNBC’s “Trading Nation” on Friday. He has been warning Wall Street about COVID-19 since February, claiming the markets were underestimating the damage it would cause.

Issuing a warning about the gamble the states are taking by reopening businesses too quickly, noting that “if we get a second wave, it will be a depression.” He added, “We may not shut down again, but certainly it will scare people and spook people and weigh on the economy.”

On Unemployment

According to Zandi, a depression is 12 months or more of double-digit unemployment. Jobless figures announced for April on Friday by the Labor Department, indicate that the unemployment rate has risen to 14.7% and non-farm payrolls have slipped by 20.5 million.

Both these numbers are records unbroken since World War II. On the reaction of markets to the data, Zandi said, “The market is casting a pretty high probability of a V-shaped shaped recovery.” He claimed that the underlying reason was the market’s short-term horizon, which spans, “Next month, the month after, the month after that.”

On Friday, the Dow Jones, S&P 500 and Nasdaq all closed nearly 2% higher.

The Quicksand Of Uncertainty 

Zandi also believes that jobs would bounce back by Memorial Day weekend as businesses reopen. If there is no second wave, he thinks the gains could continue through summer into early fall. However, he is not hopeful for the period after that, “I think we’re going to be in quicksand because of the uncertainty around the virus and the impact that it’s going to have on consumers and businesses.”

Vaccine Or 1930’s Style Bust

Pending the development of a vaccine within the next year, the economy would move towards a 1930s style depression, the economist said. He predicated an economic bounce back on the development of a vaccine, “It’s critical. It’s a necessary condition for the economy to fully recover.” As for the Wall Street, Zandi says they will have to “reevaluate things at some point.”