As reported by the Business Cycle Dating Committee (not a corporate Peloton matchmaking group!) of the National Bureau for Economic Research (NBER), US economic activity entered a trough in April 2020. This followed the peak of activity that occurred in February 2020. Hence, the “recession” attributable to the COVID-19 pandemic lasted two months according to the NBER, making it the shortest US recession on record.
Whilst a recession is generally defined as two successive quarters of negative real gross domestic product (GDP) growth, the NBER designates a recession as the period between a peak and a trough of economic activity, characterized by significant decline in economic activity that is spread across the economy and that lasts more than a few months. The peak is the month in which a variety of economic indicators reach their highest level, followed by a significant decline in economic activity. Similarly, a month is designated as a trough when economic activity reaches a low point and begins to rise again for a sustained period.
But how does the current economic climate feel to you, to your business, and to your clients? As we enter discussions and business continuity planning for a potential fourth wave associated with the Delta variant, economic activity is still impacted by the effects of COVID-19. Recovery is not linear, and is not following a recognizable pattern based on prior systematic economic shocks such as the Global Financial Crisis or the September 11 attacks. Additionally, the recovery is being felt in different ways among geographies, industry sectors, and even within industry sectors.
At the outset of the pandemic, there was a rush of articles and opinions on the wave of contractual disputes that would inevitably arise because of diminished contractual performance and the enforcement of force majeure, MAE or frustration of purpose clauses. This wave has not yet materialized as predicted. Was this just wishful thinking from those in the legal and consulting industries, or the result of the more nuanced impacts on financial performance because of the pandemic? Experts expected the litigation stemming from most COVID-19 related contract disputes would focus on whether the pandemic or its related effects provided a defense for the nonperforming party's alleged breach. Is that breach period limited just to the officially designated recession period (February 2020 – April 2020) or the much longer - and arguably more significant - tail lasting until today and beyond? We are still waiting to see.
So, what is therefore more important: the force majeure event or the resulting lingering and evolving impact of the force majeure event? The two-month recession from Spring 2020 seems a very long time ago at the time of this writing, but its effects are arguably still being felt today, maybe even more so.