The unprecedented response to the COVID-19 pandemic touched every actor in the global economy: consumers, workers, businesses, shareholders and business owners, renters, property owners, nonprofits, and governments at every level. The worldwide lockdown hit travel, transportation, and retail first, and spending collapsed in March as shelter-in-place orders and steep job losses restricted expenditures. Tax revenues plunged across all levels of government while demand for (and supply of) certain services ballooned. The Federal Reserve and central banks around the globe stepped in at record speed to revive and expand many of the policies developed during the Global Financial Crisis, to provide liquidity and support for financial markets that were seizing up in uncertainty. Governments rushed to offer massive fiscal stimulus to backstop the economy.

All these actions were taken to address the economic impact of the shutdown. However, these policies can only address the symptoms of the economic dislocation. At its core, this event is a global health crisis, and its resolution depends on the containment of the spread of the virus and a vaccine. The full return of the economy depends on the confidence that we are safe to resume jobs, travel, consumption, and daily interaction. Until then, the global economy will be hampered in ways we can only partly anticipate; the unmeasurable risk of the global health crisis will dominate for some time.

The speed with which the response to the pandemic shut down the economy and devastated confidence in the capital markets was remarkable. We hit bear market territory for the U.S. stock market—defined as a decline of 20%—in 16 days, the second-fastest drop in history (dating back to the Great Depression), only missing the record by a day. We hit a bottom on March 23, when the U.S. market was down almost 34%. Equity markets around the globe were down by at least the same amount.

The U.S. economy finished February in pretty good shape, trending to a GDP growth rate for the first quarter of just above 2% annualized, with unemployment at a generational low of 3.5%. In a matter of weeks, as efforts to address the spread of the virus were enacted quickly, the sudden drop in economic activity matched the depth and speed of the stock market drop. The national emergency was declared March 13, most shelter-in-place orders came over the next couple of weeks, and the economic impact was sudden and severe.

Initial unemployment claims came in at 211,000 the first week of March, at trend for the year, and moved up to 282,000 in the second week, normally an alarming increase of 34%. However, claims then shot up to 3.3 million the next week and doubled again to 6.9 million the following week. While my commentary is focused on the first quarter, it is important to note that claims have reached almost 34 million in just seven weeks. Economic activity hit a serious bump after March 13, with 2½ weeks left in the quarter. The loss in this short period to GDP pulled growth from 2% as March began to a fall of 4.8% for the first quarter, a swing of almost 7% in less than three weeks. This was the largest quarterly decline since the fourth quarter of 2008.

As large and surprising as the first quarter drop may be, a much steeper plunge is in store for the U.S. and the rest of the global economy in the second quarter. Consensus projections are for second quarter GDP to fall by up to 35% (annual rate), and for consumption to fall by more than 40%. These numbers would be cartoonish, if they weren’t so dire.

The pullback in business activity, employment, labor income, and subsequently in consumption is without modern parallel, and the usual measures of gauging economic activity must be viewed through a new lens to gain meaning. Percent changes in GDP around a cataclysmic event like this are difficult to grasp and not very helpful; a more useful approach will be to compare levels now and in the future versus pre-COVID. Percent change is more useful in describing an economy moving smoothly through normal cycles of expansion and recession.

On a hopeful note, in the words of Dr. Anthony Fauci, “this pandemic will be over, I promise.” The monetary and fiscal response is massive and is keeping markets liquid. The S&P 500 was down 20% through March, but has retreated to a loss of 12% year-to-date through April, and the index is now at a level comparable to both September 2019 and one year ago. Finally, we will adapt and learn to live and work safely, just as we learned to fly safely after 9/11.