U.S. Recovery Looks to Be Ebbing in States With Virus Outbreaks
(Bloomberg) - The US economic recovery is beginning to show signs of weakening in some countries where the number of coronavirus cases is increasing.
The easing is reflected in high-frequency data such as OpenTable restaurant reservations and follows a sharp increase in activity as companies were reopened due to closures to control the spread of Covid-19.
"We are now seeing very early signs of things flattening out," said Michelle Meyer, director of US economics at Bank of America Corp., in some states that were first reopened and are now suffering from increasing virus cases.
The result, she said, should be an uneven recovery, even if gross domestic product quickly recovers from what is probably the steepest dive since the Great Depression in the next quarter. "It gets fit and starts," she said. "It won't be a smooth path."
The job data from Thursday reflected this. Applications for unemployment benefits were higher than forecast for a second week and were 1.48 million after 1.54 million in the previous period. The mean forecast was 1.32 million. However, continuing claims declined more than estimated - to 19.5 million in the week ending June 13.
"The stickiness that we see in claims is a cause for concern," Meyer said before the last report. "It tells you that there is still a lot going on," even if the economy reopens.
Among America's most populous states, Texas, Florida, and California have seen coronavirus outbreaks increase, while others, including New York, have declined. All in all, districts that account for between a third and a half of US GDP suffer from worsening trends in new cases or deaths related to Covid-19, according to studies by economists at Deutsche Bank AG.
The S&P 500 index plummeted 2.6% and government bond yields fell on Wednesday as investors worried about the economic outlook.
"We're playing Whac-A-Mole mediocre in fighting the disease," former Treasury Secretary Lawrence Summers said.
IMF projects deepen global recession as virus threat grows Deaths due to Covid 19 forecast to 180,000 in OctoberAmericans again avoid business in new virus hotspots
He told the New York business club on Wednesday that 30% of the economy - either through government regulation or through self-employed individuals and businesses - needs to be shut down to prevent the pandemic from getting out of control.
The dwindling economic momentum that is already evident in countries with more virus cases is occurring, although the authorities there have not yet prescribed the shutdowns, although they may ultimately do so. Instead, the shift appears to reflect the growing caution of consumers and businesses about the contagion.
"The public is not mentally immune to Covid-19 and will withdraw if the virus spreads, regardless of government restrictions (or lack thereof)," economists Jefferies LLC, Aneta Markowska and Thomas Simons, wrote in Wednesday a message to customers.
This is especially true for older Americans who are at greater risk of dying from the virus if they become infected.
"The baby boomers make up about 30% to 35% of consumer spending in this country," said Peter Hooper, global director of economic research at Deutsche Bank AG, on Bloomberg Television on Wednesday. "If this virus gets worse, consumer spending will stop."
This, in turn, would create "real problems" for many US companies with low profit margins, as they would still have to work well below capacity due to limited consumer demand, said Michael Feroli, chief economist at JPMorgan Chase & Co. in the United States.
GLOBAL INSIGHT: What alternative data on recovery say
Recurring coronavirus outbreaks could mean slow economic expansion and increased unemployment for years, according to Charles Evans, president of the Federal Reserve Bank of Chicago.
"My forecast assumes that growth will be slowed down by responding to temporarily localized outbreaks - which could be exacerbated by the faster than expected reopening," Evans said Wednesday in a comment at a virtual event.
Some economists say that a number of countries have prematurely restarted their economies and have barely followed the guidelines of the Centers for Disease Control and Prevention.
This has led to an earlier and stronger recovery in economic activity in the latest national statistics. It also increased the risk of relapse in parts of the country as the virus flared up again.
"The economic boom has started," said Summers, a Bloomberg associate and professor at Harvard University. "We won't see much bounce back until we get a vaccine."
(Adds the latest unemployment benefits in the fifth paragraph.)
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