RECESSION -HAIRCUT- RESEARCH : ECONOMICS

The haircut as a recession signal. Those not directly affected by the virus, like barbers, maybe the best predictors.

A Recession is a more than just a dip in gross domestic product. As most economists think of it, a recession involves a cycle that feeds on itself :
Job cuts lead to less income, which leads to less spending, which leads to more job cuts.

[Of course, that doesn't go on indefinitely, especially if central banks and governments intervene forcefully to kick-start growth.]

THE global outbreak has caused upheaval in stock markets and disrupted supply chains around the world. One Thursday March, the United States Federal Reserve took an aggressive step to try to contain the damage, announcing that it would slash interest rates by half a percentage point.

Economists say a pandemic could clearly cause a recession in the United States. But for that to happen, the effects would have to spread beyond the manufacturing, travel and other sectors directly affected by the disease.

The real sign of trouble, said Tara Sinclair, an economist at the George Washington University, will be when companies with no direct connection to the virus start reporting a slump in business.

''The key is to watch big macro numbers rather than obsessively watching things tied to the virus and supply chains,'' Ms. Sinclair said.

''If people aren't getting haircuts anymore, that's a bad sign.''

One indicator that economists do not recommend focusing on is the stock market. But the stock market is dominated multinational corporations. Its drop reflected fears of what pandemic could mean for Asia and Europe as well as the United States.

But many companies have heavy debt loads, which could make it harder for them to weather any  virus-induced slowdown. Business investment was already falling, and President Trump's trade war has taken a toll on manufacturing.

Most economists already expected growth to slow enough this year to leave the economy vulnerable.

''A lot of forecasters have been saying, 'If we were to see a recession in the next year or two, it would be coming from some external shock,'' and indeed that's just we're getting,'' said Karen Dynan, a Harvard economist.

The World Students Society thanks author, Ben Casselman.