Hopes dim on quick economic recovery

Economic analysts are souring on the prospect of a quick recovery that would see the economy bounce back once the coronavirus pandemic is brought under control.

The darker projections come as the country struggles to ramp up the testing and contact tracing systems that public health experts say are key to safely reopening the economy.

The delays in creating conditions to reopen the economy could mean the economic damage will result in bigger scars, leaving more businesses bankrupt, more employees out of work — and a more arduous path to recovery.

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The pessimistic outlooks contrast with remarks from President TrumpDonald John TrumpTrump marks 'very sad milestone' of 100K coronavirus deaths DOJ: George Floyd death investigation a 'top priority' Lifting our voices — and votes MORE, who has repeatedly sought to talk up the economy by saying he believes there will be a tremendous rebound later this year.

“We created the greatest economy in the history of the world, and we're going to do it again,” he said Friday, adding that he expected the economy to come roaring back next year.

In early March, S&P Global forecast that the recession caused by the virus would be relatively minor, causing the economy to shrink at an annual rate of 1.3 percent. Two weeks later, that projection jumped to 5.2 percent.

But the projection's range also included a larger downside of an astonishing economic contraction of as much as 8.2 percent for the year.

“The worry and increasing likelihood is that the downside is becoming the baseline again,” said Beth Ann Bovino, S&P Global's chief economist for the U.S.

Economic forecasters rely on a mix of assumptions, constantly updated data and models to project where things will head.

One central assumption is how well the government will contain the virus.

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“We’ve tried to incorporate pubic health assumptions, and our baseline was that the virus would be contained in the second quarter,” Bovino said.

But the Trump administration has faced withering criticism for its slowness in ramping up testing and putting in place a contact tracing system while providing clear guidelines to help states minimize the risks of reopening.

The Centers for Disease Control and Prevention just posted its one-page guidelines on reopening on Thursday, after The Associated Press reported last week that the White House had blocked more detailed plans.

In stark testimony Thursday, former Biomedical Advanced Research and Development Authority head Rick Bright warned that the virus could come back with a vengeance and cause the "darkest winter in modern history" without a national plan.

“If we fail to develop a national coordinated response, based in science, I fear the pandemic will get far worse and be prolonged, causing unprecedented illness and fatalities,” he told the House Energy and Commerce Subcommittee on Health.

The Lancet, one of the world’s top health publications, took aim at the Trump administration in an editorial Friday that said the U.S. was not ready to revive the economy.

“The USA is still nowhere near able to provide the basic surveillance or laboratory testing infrastructure needed to combat the COVID-19 pandemic,” the editorial said.

The stream of economic data pouring in has also frayed nerves.

More than 33 million workers have applied for unemployment insurance in eight weeks, obliterating all records. Indexes tracking production and manufacturing clocked their worst-ever declines in April, setting a low mark for the 101-year data set. The 8.3 percent fall in retail sales in March set a historic record, only to be eclipsed by a 16.4 percent drop in April, well above what economists expected.

Bovino pointed to an often overlooked note in the April jobs report, which put the unemployment rate at 14.7 percent as of mid-April. The report noted a jump in people classified as “absent” from work and speculated that they may have been misclassified.

Had those workers been “classified as unemployed on temporary layoff, the overall unemployment rate would have been almost 5 percentage points higher than reported (on a not seasonally adjusted basis),” the report said.

Graph-loving economists tend to compare the path of a recovery to letters in the alphabet.

A quick drop followed by an equally frenetic return resembles a V, the best-case scenario for a crisis and the outlook many forecasters gave in the early days of the pandemic.

More recently, the tables have turned.

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“I think a V-shape recovery is off the table," Federal Reserve Bank of Minneapolis President Neel Kashkari said at a roundtable Thursday, adding the lockdown period would leave economic casualties.

"Small businesses, even here in Minneapolis, we've seen restaurants who've already announced we're not reopening, that it's just too hard, we're just going to close up. That's what makes it a much longer, harder recovery," he added.

Far from simply demanding an end to lockdowns, Kashkari said the economy would not get going again until people felt safe returning to work and doing business.

“Until we have confidence, this recovery is going to be muted. And I don't think there's any way around that,” he said.

A census survey of small businesses found that just 28 percent of small-business owners expected to return to normal operations within three months.

Rather than a V, more and more analysts, including Bovino, are predicting a drawn-out downturn that more closely resembles a U.

More pessimistic analysts see an even slower climb back to normality and are warning that the recovery may not look like a letter at all but more like the Nike swoosh with its gradual, shallow climb.

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Not everyone is convinced that a quick recovery is off the table.

"When we look at history, there really aren't that many examples of a U-shaped recovery coming off a recession, especially when it's this steep," Morgan Stanley Chief U.S. Equity Strategist Mike Wilson said Monday in a CNBC interview.

"When you combine that with the fact that the policy response has really been unprecedented, it's hard for us not to see a V-shaped recovery," he added.

Congress has passed more than $3.6 trillion in emergency response to the pandemic, while the Fed has pumped trillions of dollars into the financial system. The House on Friday passed a $3 trillion emergency relief bill, though Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellMcConnell urges people to wear masks: 'There's no stigma' Frustration builds in key committee ahead of Graham subpoena vote  Lack of child care poses major hurdle as businesses reopen MORE (R-Ky.) has said the bill would need to be more narrowly focused.

But Wilson conceded that the economy was dependent on successfully containing the virus.

If the economy doesn't come roaring back, he said, "I think what's more likely is that a W happens, you know, the sort of double dip because the virus returns."

But even Trump, who is betting his political future on a message of strong economic recovery, seems to have extended his timeline in recent weeks.

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Through late April, he was regularly touting “a phenomenal third quarter,” as he said on April 27.

Since April 28, however, he started referring to the third quarter as a “transitional” period, a phrase he’s used frequently since, most recently on Friday. The real recovery, he said, would likely come later.

“You'll start to see it in the fourth quarter,” he said.