Recovery looks to be ebbing in states with virus outbreaks
The U.S. economic recovery is showing incipient signs of weakening in some states where coronavirus cases are mounting.
The ebbing is evident in such high-frequency data as OpenTable restaurant reservations and follows a big bounce in activity as businesses reopened from lockdowns meant to check the spread of Covid-19.
"We're now starting to see very early evidence that things are leveling off" in some of the states that reopened first and are now suffering rising virus cases, said Michelle Meyer, head of U.S. economics at Bank of America.
The result, she said, is likely to be an uneven recovery, even as gross domestic product rapidly rebounds next quarter from what will probably be the steepest nosedive since the Great Depression. "It's going to be fits and starts," she said. "It's not going to be a smooth path."
Jobs data on Thursday reflected that. Applications for unemployment benefits were higher than forecast for a second week, clocking in at 1.48 million after an upwardly revised 1.54 million in the prior period. The median forecast called for 1.32 million. Continuing claims, however, declined more than estimated -- to 19.5 million in the week ended June 13.
"The stickiness that we see in claims is a reason to be concerned," Meyer said even before the latest report. "It tells you there's still some firing going on" even as the economy reopens.
Among America's most-populous states, Texas, Florida and California are experiencing a surge in coronavirus outbreaks even while others, including New York, see declines. Overall, counties accounting for between one-third and one-half of U.S. GDP are suffering from worsening trends in new cases or Covid-19-related deaths, according to research by Deutsche Bank economists.
"We're playing mediocre Whac-A-Mole" in controlling the disease, former Treasury Secretary Lawrence Summers said.
He told the Economic Club of New York on Wednesday that 30% of the economy will need to be shut back down -- either by government decree or by people and companies acting on their own -- to prevent the pandemic from getting out of control.
The fading economic momentum already evident in states with more virus cases is occurring even though the authorities there have not re-imposed shutdowns, though they may eventually do so. Instead, the shift appears to reflect increased caution by consumers and businesses in the face of the contagion.
"The public is not psychologically immune to Covid-19 and will retrench if the virus starts spreading again, regardless of government restrictions (or lack thereof)," Jefferies economists Aneta Markowska and Thomas Simons wrote Wednesday in a note to clients.
That's particularly the case for older Americans, who are in greater danger of dying from the virus if they contract it.
"The baby boomers account for something like 30% to 35% of consumer spending in this country," Peter Hooper, global head of economic research for Deutsche Bank, said Wednesday on Bloomberg Television. "If this virus continues to get worse, consumer spending is not going anywhere down the road."
This, in turn, would create "real problems" for many U.S. businesses with low profit margins because they would still have to operate well below capacity due to limited consumer demand, according to JPMorgan Chase Chief U.S. Economist Michael Feroli.
Recurring coronavirus outbreaks could mean restrained economic expansion and elevated unemployment for years, according to Federal Reserve Bank of Chicago President Charles Evans.
"My forecast assumes growth is held back by the response to intermittent localized outbreaks -- which might be made worse by the faster-than-expected reopenings," Evans said Wednesday in remarks at a virtual event.
What seems to have happened, some economists say, is that a number of states restarted their economies prematurely, paying little heed to guidelines from the Centers for Disease Control and Prevention.
That led to the earlier and stronger recovery in economic activity seen in recent national statistics. But it also raised the risk of a relapse in parts of the country as the virus flares anew.
"The bounce-back in the economy has happened," said Summers, a Bloomberg contributor and professor at Harvard University. "We're not going to see a lot more bouncing back until we get a vaccine."
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