Spiking coronavirus cases threaten fragile recovery
The surging coronavirus is threatening to derail a budding recovery from the pandemic-driven recession.
COVID-19 cases are skyrocketing in states across the South and the Sun Belt, where governors who took some of the most ambitious steps to reopen their economies are now in retreat, scrambling to curb new outbreaks.
Those setbacks come less than a month after economic data almost across the board showed promising signs that a recovery was taking hold. Job gains and consumer spending in May boosted hopes of steady, if grueling, recovery.
But with the hardest-hit states now taking lockdown steps reminiscent of March and April, economists warn the road to recovery may get a lot more painful, with some regions weighing down the rest of the country’s economic prospects. That scenario would also deal a significant blow to President Trump, whose reelection campaign focuses heavily on the economy.
“Renewed restrictions in some cities, counties, and states already are underway, and more will follow,” wrote Ian Shepherdson, founder and chief economist of research consultancy Pantheon Macroeconomics, in a Friday research note.
“With fear of the disease keeping people home, the recovery [in] the South — which is already faltering — could easily go into reverse,” he added.
After months of progress slowing the spread of COVID-19, the U.S. in the past week has consistently broken daily records for new cases. Thursday saw a record of 40,401 new cases reported, according to Johns Hopkins University, shattering the previous mark set in April by more than 3,000.
Trump and other administration officials have downplayed the surge, instead calling it a sign of greater testing capacity.
“There may be a tendency among the American people to think that we are back to that place that we were two months ago, that we’re in a time of great losses and great hardship on the American people. The reality is we’re in a much better place,” Vice President Pence said Friday at the first White House coronavirus task force briefing since May.
Even so, the proportion of patients testing positive for COVID-19 has spiked in some of the states that were among the quickest to ease restrictions.
Texas Gov. Greg Abbott (R) on Friday shut down bars and forced restaurants to cap capacity at 50 percent after the state posted three straight record-breaking days of more than 5,400 new cases each. More than 10 percent of all Texans tested for COVID-19 have tested positive, according to The Texas Tribune.
Florida halted on-premises alcohol consumption at bars on Friday after the state reported a record-breaking 8,942 new cases. Gov. Ron DeSantis (R) had pledged days earlier that he would not reimpose coronavirus-related restrictions. More than 13 percent of Floridians tested for COVID-19 have tested positive.
“It takes weeks and weeks for an outbreak of the size that’s going on in Florida, Texas to build. That had been going on for weeks,” said former Food and Drug Administration Commissioner Scott Gottlieb in a Friday interview with CNBC.
“I think people are going to be more cautious on their own,” he added. “They’re now talking about ‘You should wear a mask. You should try to stay home.’ So maybe people heed that sort of soft advice. But if they don’t, this is going to continue to expand.”
A resurgence in cases could be ruinous for businesses and employees who barely survived the first lockdown orders. Roughly 15 million laid-off workers told the Labor Department in May that they expected to return to their pre-pandemic jobs, but another round of lockdowns may prevent that from happening.
“What happens after the Northeast reopens depends on whether the southern Covid wave is brought under control. If it isn’t, renewed weakness in the South and West, accounting for more than 35% of the economy, will be a drag on the national economic activity numbers until there’s a vaccine,” Shepherdson wrote.
Economists have also warned that fear of the virus itself will prevent the U.S from a full recovery even if state and local governments lift all restrictions.
A study from University of Chicago economics professors Austan Goolsbee and Chad Syverson found that “legal shutdown orders account for only a modest share of the massive changes to consumer behavior.”
Goolsbee — who chaired former President Obama’s White House Council of Economic Advisers — and Syverson analyzed consumer foot traffic at more than 2 million businesses with a focus on metro areas that straddled state or county boundaries with different coronavirus-related restrictions.
They found that while consumer traffic declined by 60 percent amid the start of the pandemic, only 7 percentage points of that decline could be directly attributed to stay-at-home orders.
“The vast majority of the decline was due to consumers choosing of their own volition to avoid commercial activity,” they wrote, adding that the slowdown was “strongly correlated with the number of local COVID-19 deaths.”
Several economists have noted that the employment and consumer spending resurgence in May was largely driven by the unprecedented fiscal stimulus provided by Congress. The flip side is that those gains could disappear if lawmakers don’t keep support for struggling businesses and unemployed workers.
Small businesses face a June 30 deadline to apply for Paycheck Protection Program emergency loans as advocates call on Congress to revamp the $659 billion effort into a longer-term initiative.
Federal Reserve Chairman Jerome Powell and a slew of other economists have also urged Congress not to let a $600 boost to unemployment benefits expire on July 31 without some other form of financial support for jobless workers. Otherwise, they warn, a steep decline in national incomes could plunge the U.S. deeper into recession and drive a cycle of layoffs and business closures that could decimate the economy’s prospects in the long run.
“Consumer spending sprung back to life in May and registered a record 8.1% advance as the nation reopened. But, don’t be fooled, the rebound was only partial and largely supported by April’s massive fiscal stimulus injection,” wrote Lydia Boussour, senior U.S. economist at research firm Oxford Economics, in a Friday analysis.
“A failure to provide additional fiscal stimulus would further threaten the nascent recovery,” she added.
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