It may be the economy’s make or break moment.
Mark Zandi of Moody’s Analytics is getting increasingly worried states are taking a large gamble by reopening businesses too quickly.
He warns a spark in new coronavirus infections would send the economy further into tailspin — especially since there’s no vaccine.
“If we get a second wave, it will be a depression,” the firm’s chief economist told CNBC’s “Trading Nation” on Friday. “We may not shut down again, but certainly it will scare people and spook people and weigh on the economy.”
Zandi defines a depression as 12 months or more of double digit unemployment.
On Friday, the Labor Department reported the April jobless rate soared to 14.7%, and non-farm payrolls tumbled by 20.5 million. Both sets of employment data are post-World War II records.
The market seemed to take the data in stride. The Dow, S&P 500 and tech-heavy Nasdaq closed almost 2% higher on Friday.
“The market is casting a pretty high probability of a V-shaped shaped recovery,” said Zandi. “The horizon may be a little short term: Next month, the month after, the month after that.”
Zandi predicts jobs will start to rebound by Memorial Day weekend as businesses reopen. If there’s no second wave, he estimates the gains will flow through the summer into early fall.
“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,” he added.
Zandi has been warning Wall Street about the coronavirus threat since winter. In late February, he told “Trading Nation” the Street was underestimating the damage from a pandemic. His forecast came before states imposed strict lockdowns to contain the spread of the virus.
For the economy to get back on track, he contends it’s necessary to get solid progress on a vaccine. A delay or failure to come up with a vaccine within the next year or so would also cause a 1930s-type downturn, according to Zandi.
“It’s critical. It’s a necessary condition for the economy to fully recover,” Zandi said. “We’re going to see the market reevaluate things at some point. ”
