Bank of America says coronavirus has already pushed the US into recession

• Bank of America believes the US economy has fallen into a recession amid the coronavirus pandemic, according to a Thursday note.
• US GDP will collapse in the second quarter, falling 12% on a seasonally adjusted annual rate basis - the biggest quarterly decline in post-war history - the bank said.
• "The salvation will come if there is a targeted and aggressive policy response to offset the loss of economic activity and ensure a sound financial system," economists led by Michelle Meyer wrote.
• Read more on Business Insider.

The coronavirus pandemic has closed US schools, restaurants, and factories as the nation rushes to curb the spread of COVID-19, the illness the virus causes. The shock has also pushed the US economy into a recession, economists from Bank of America said.

"We believe that the US economy has fallen into recession, joining the rest of the world, and it is a deep plunge," economists led by Michelle Meyer wrote in a Thursday note.

The economists forecast that US gross domestic product will collapse in the second quarter, falling 12% on a seasonally adjusted annual rate basis - the biggest quarterly decline in post-war history - after growing only 0.5% in the first quarter of 2020. For the full year, the bank is forecasting a contraction of 0.8%.

Markets have also been roiled by the coronavirus pandemic, ending the longest-ever bull market in history. Bank of America's recession call comes as a growing number of industry watchers are warning that there is likely to be severe damage to the US economy as the outbreak slows consumer activity and dampens confidence.

"Jobs will be lost, wealth will be destroyed and confidence depressed," Meyer said. "The salvation will come if there is a targeted and aggressive policy response to offset the loss of economic activity and ensure a sound financial system."

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Bank of America expects that approximately 3.5 million jobs will be lost, with the biggest hit of 1 million per month in the second quarter. This will send the unemployment rate nearly doubling to 6.3%, the bank said.

Industries such as leisure, hospitality, and retail will likely be hit the hardest, as they have the largest shares of hourly workers who struggle to work from home, according to the note.

Going forward, economists at the bank will be watching high-frequency indicators such as their own consumer data, Opentable reservations, traffic, school closures, transit data, manufacturing surveys, and early labor market indicators.

One positive factor going forward that Bank of America expects is that the economy will return to growth in the third quarter of the year. But, the size and the speed of a second-half recovery is dependent on the size of policy response, the note said.

"There should be no upper bound for the size of stimulus, in our view," Meyer wrote. While the Fed is focusing on restoring liquidity to the financial system, the federal government should focus on the liquidity crunch in the real economy, she added.

The Fed's emergency actions have been aggressive - rates have been slashed to zero, quantitative easing has been relaunched, and other 2008 crisis tools have been put into action. The White House is working on a major stimulus, but "time is of the essence," according to Meyer. On Wednesday, Trump signed an emergency coronavirus package with paid sick leave for some workers, but the White House is still pushing for an additional $1 trillion to help aid the economy.

"The policy response will determine whether this deep recession in 2Q persists or proves fleeting. Washington - all eyes are on you," she said.