Economic Recovery Slowed Down after Rapid Rebound

Matty-Sways

Experts are now saying we may see a W shaped recovery rather than a V shaped graph.

After an initial V-shaped drop and partial rebound, economic recovery has become a reverse image of the square root symbol in the past two weeks, according to The Wall Street Journal.

The reason for slowdown might be the resurging coronavirus cases in some states, the exhaustion of demand led by stimulus packages, or the reclosed stores in some states.

Aneta Markowska, the chief economist at Jefferies, a financial-services company collecting daily index of high-frequency data on mobility, jobs and other activity, said that “it was a straight line up for the better part of two months. So this is definitely a notable slowdown that began around June 17th.”

Because of the uncertainty of the pandemic and the social-distancing measures, the recovery has been unpredictable. Following the collapse by mid-April, economic activity has continued to rise, spending has returned to pre-pandemic levels for some categories. However, coronavirus cases have spiked in some states, including Arizona, Texas, Florida, and California.

Jesse Edgerton, an economist at J.P. Morgan Chase, noted that spending in restaurants could predict new cases three weeks later. According to data from Chase credit-card customers, last week’s spending, especially in states with rapidly rising cases such as Arizona and Florida, declined.

“There’s a clear decoupling in activity between these hot-spot states in the Sunbelt and the Northeast where activity continues to improve,” said Markowska. “Texas, Arizona and Florida have not just leveled off but are outright contracting. [For them,] what began like a V is morphing into a W.”

The recovery will depend on income growth and restrictions undertaken to halt the virus spread. In March and April, 22 million jobs lost. With 2.5 million jobs being added in May, economists predict a 2.9 million increase in June.

As businesses reopened, small-business employment has increased from mid-April to mid-June, according to André Kurmann, an economist at Drexel University who with two co-authors has analyzed data from Homebase, which supplies scheduling software to small businesses.

“The recovery is now all but stalled: Employment and the proportion of businesses open last week is flat,” said Kurmann.

States including Florida, Texas, Houston, and California have ordered stores to reclose as cases continue to rise.

Economic-analysis firm IHS Markit predicts a 20% chance of a W-shaped recovery. “Official backtracking on the relaxation of restrictions as well as voluntary pullback on the part of consumers could cause spending to weaken again sharply, throwing the economy back into a brief two-quarter recession,” the company said.

Read the full story here.

Comments

Economics, Finance and Investing

FEATURED
COMMUNITY