Economists warn new COVID-19 surge may kneecap recovery
The June jobs report may be the last piece of good news for the economy this summer as surging coronavirus cases threaten to dampen the burgeoning recovery.
The U.S. is expected to show another month of steady job growth when the Labor Department releases the June figures on Thursday morning, with economists predicting a gain of 1 million to 3 million jobs. Those increases would follow May’s report, which showed millions of Americans returning to work after being furloughed or let go.
Two consecutive months of employment growth following the loss of 21 million jobs would be a welcome sign for the U.S. as it navigates the worst downturn since the Great Depression. But economists warn that the June report may paint a misleading picture of a fragile economy as surging COVID-19 cases cut into the ground gained since the depression started in February.
“Given the likelihood that states may have to re-shutter parts of their economies with the rise in cases, the job gains we saw last month may not last,” wrote Elise Gould, senior economist at the progressive Economic Policy Institute, in a preview of the jobs report.
“The losses this spring were mammoth and given recent trends on the health front plus the upcoming fiscal cliff, the economic pain will certainly be long lasting,” she added.
The failure to contain the early outbreaks of COVID-19 forced governors, local officials, business owners and workers to balance the health risks of reopening with the dire economic costs of shutdowns. While nearly every state had loosened coronavirus restrictions by mid-May, some sprinted far beyond the suggestions of public health officials without imposing new safeguards, such as mask requirements, to complement the transition.
The piecemeal reopening of the economy helped 2.7 million furloughed workers return in May, for a net gain of 2.5 million jobs. The rebound also carried over into the start of June and helped private businesses add nearly 2.4 million workers to their payrolls, according to a monthly report released Wednesday by the ADP Research Institute and Moody’s Analytics.
Mark Zandi, chief economist at Moody’s Analytics, told reporters Wednesday that the federal jobs report — which includes government workers as well as private sector employees — would likely show a gain of 3 million jobs and push the unemployment rate down from 13.3 percent in May to roughly 11.5 percent.
Even so, Zandi warned that the June numbers would not reflect the steep rise in coronavirus cases across the South and Sun Belt. That surge, he said, happened largely after the jobs report surveys were taken during the week of June 12. Two weeks after that, more than a quarter-million Americans tested positive for the coronavirus and more than 40,000 tested positive on three consecutive days over the past weekend.
“This is a real threat to the nascent recovery,” he said. “A healthy population is a necessary condition for a strong economy.”
Federal Reserve officials also expressed fears this month that the early efforts to reopen the economy could spur “a significant increase of infections” that plunges the economy into a deeper and more damaging recession, according to minutes released Wednesday.
“The effects of the coronavirus outbreak and the ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term and would pose considerable risks to the economic outlook over the medium term,” policymakers said in meetings of their June 9-10 meeting that were made public Wednesday.
Those fears may already be born out in data collected since the June survey week.
States and cities facing a rapid rise in COVID-19 cases are already seeing declines in consumer foot traffic, according to an analysis from the conservative American Enterprise Institute, particularly in Texas, Arizona, Florida and California. All four states have since reimposed restrictions on indoor dining, bar occupancy or other recreational activities that will likely cause deeper slumps.
While coronavirus hot spots have seen some of the steepest slowdowns since mid-June, the pace of the recovery has also slowed nationally.
Just 51 percent of workers who were employed in January were working again by the beginning of May, according to data from Homebase, a company that provides scheduling and hour-tracking platforms for small businesses. That number rose to 69 percent by the end of May and 72 percent by the start of June, but plateaued near 77 percent by the end of last month.
“While June overall has seen increases in Main Street business activity, we think this is likely a false signal for optimism. Over the last week, we’ve [seen] flattening and slight downward trends, a stark contrast to the upward curves we’ve seen since the nadir in April,” wrote Homebase Vice President Ray Sandza and senior analyst Andrew Vogeley in a Wednesday analysis.
Even so, President Trump and top administration officials have remained optimistic that the economy can continue to grow and add workers despite the surge in COVID-19 cases.
“We are headed back in a very strong fashion,” Trump said during a Wednesday interview with Fox Business Network, adding that he expects the virus to “sort of just disappear.”
Larry Kudlow, director of the White House National Economic Council, also waved off suggestions that a resurgence of the virus was slowing the economy.
“At least not yet. I mean the overwhelming evidence is that we’re in a V-shaped recovery. And we’re looking at it as so far so good,” Kudlow said Monday. “And the story, if it changes, we’ll have to see.”
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