The US economic recovery still faces these 5 hurdles going forward, even with the worst of the coronavirus recession likely passed
- This week, a number of economic indicators showed just how shaky the US recovery from the
coronavirus pandemichas become even though the worst of the recessionis likely over.
GDPfell a record 33% in the second quarter, initial jobless claims ticked up for the second week in a row, and consumer sentiment slumped further.
- Going forward, these are five hurdles that the economic recovery from the pandemic recession faces.
This week, a number of economic reports showed just how much the
On Wednesday, Federal Reserve Chairman Jerome Powell highlighted the increasing economic uncertainty in a speech following the central bank's policy meeting, in which it decided to hold interest rates near zero.Read more: A Wall Street quant chief breaks down why a COVID-19 vaccine is not the silver bullet investors have been hoping for — and warns another stock-market meltdown is likely
"We have seen some signs in recent weeks that the increase in virus cases and the renewed measures to control it are starting to weigh on economic activity," said Powell. "The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check."Other troubling reports added to worries that the economic recovery is on less than stable footing. Also on Thursday, initial jobless claims increased for the second straight week, breaking a months-long streak of declining claims. On Friday, two reports gave a snapshot of how consumers are feeling. The University of Michigan's consumer sentiment index fell to 72.5 at the end of July, according to a report. For June, personal income slumped as the impact of government stimulus checks faded, but consumer spending gained 5.6% after a record jump in May.
Here are the main factors that still stand in the way of the economic recovery from the pandemic recession, the sharpest downturn since the Great Depression.
1. There are still health risks from the pandemicNew coronavirus cases and deaths due to the virus continue to surge across the US. On Thursday, new cases topped 70,000, sending the overall total to more than 4.4 million, according to data from Johns Hopkins University. More than 152,000 Americans have died of the disease.
While some states have moved forward with their reopenings, many have had to pause or roll back those plans to grapple with new spikes in cases. This has weighed on employment, consumer sentiment, and business activity.
2. High-frequency indicators are going sideways
In early July, high-frequency indicators including OpenTable reservations, mobility data, and employment data from Homebase and Kronos started to show signs that the economic recovery was losing steam. Since, the indicators have showed only modest gains, putting the pace of the overall recovery into question."The general tone of the real-time data points we follow is that job market momentum slowed notably this month," Alexander Lin of Bank of America wrote in a note citing data from Homebase, Kronos, Google Mobility, the Household Pulse Survey, and more. This will likely lead to more muted job gains in July following the record jobs added in May and June, Lin said.
3. Unemployment remains high
Initial jobless claims increased for two weeks in a row at the end of July, snapping a streak of declines that stretched from late March. In addition, claims remain elevated above 1 million per week, showing that a staggeringly high number of Americans are still being laid off as the pandemic wears on. That's nearly double the worst week of layoffs during the Great Recession, when 665,000 Americans filed for
And while economists generally expect that the July jobs report, due out August 7, will show another month of job gains, there's more risk to the downside. "There is a large error band around this forecast with even a risk of a negative print," Lin of Bofa wrote.
4. Employment opportunities remain below pre-pandemic levelsAs of June, only 7.5 million jobs had been added back to the economy of the 22 million total erased due to the coronavirus pandemic. The May Job Openings and Labor Turnover Survey, released in July (it lags nonfarm payrolls by one month) showed that while hiring had rebounded from the pandemic low, openings remained down 20% from February's pre-pandemic levels. In addition, getting a job has likely become harder due to increased unemployment. In May, there were 3.9 workers for every job opening, a stark contrast from earlier in the year when job openings outnumbered unemployed workers.
5. Stimulus is up in the air, meaning a fiscal cliff is approaching
The trillions of dollars of government stimulus passed amid the pandemic has fueled the recovery, helping businesses rehire employees and replacing wages for laid-off workers, which showed up in spending.But now, a delay in the next bill could damage the recovery. This week, Congress and the White House failed to come to an agreement about the next stimulus bill, setting up the US to fall off a number of fiscal cliffs.
Friday marked the formal end of the additional $600 weekly unemployment benefit, meaning that millions of Americans are set to see a huge cut in incomes next week. Going forward, there are other deadlines on the table, including the federal eviction moratorium, foreclosure moratorium, and deferral of student loan debt payments and interest.
"Much of the replacement of income lost to the COVID crisis is set to disappear at the very moment that the economy has slowed again in response to a resurgence in infections and deaths," said Diane Swonk, chief economist at Grant Thornton, in a Friday note. "Those shifts suggest that incomes and spending could be flat to down over the summer, which would be a blow to an economy that remains in a very deep hole."Read more: GOLDMAN SACHS: Buy these 26 stocks now to crush the market as an 'overvalued' dollar continues to weaken in the months ahead
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