The fading economic momentum already evident in states with more virus cases is occurring even though the authorities there have not re-imposed shutdowns, though they may eventually do so. Instead, the shift appears to reflect increased caution by consumers and businesses in the face of the contagion.
“The public is not psychologically immune to Covid-19 and will retrench if the virus starts spreading again, regardless of government restrictions (or lack thereof),” Jefferies LLC economists Aneta Markowska and Thomas Simons wrote Wednesday in a note to clients.
That’s particularly the case for older Americans, who are in greater danger of dying from the virus if they contract it.
“The baby boomers account for something like 30% to 35% of consumer spending in this country,” Peter Hooper, global head of economic research for Deutsche Bank AG, said Wednesday on Bloomberg Television. “If this virus continues to get worse, consumer spending is not going anywhere down the road.”
This, in turn, would create “real problems” for many U.S. businesses with low profit margins because they would still have to operate well below capacity due to limited consumer demand, according to JPMorgan Chase & Co. Chief U.S. Economist Michael Feroli.
Recurring coronavirus outbreaks could mean restrained economic expansion and elevated unemployment for years, according to Federal Reserve Bank of Chicago President Charles Evans.
“My forecast assumes growth is held back by the response to intermittent localized outbreaks -- which might be made worse by the faster-than-expected reopenings,” Evans said Wednesday in remarks at a virtual event.
What seems to have happened, some economists say, is that a number of states restarted their economies prematurely, paying little heed to guidelines from the Centers for Disease Control and Prevention.
That led to the earlier and stronger recovery in economic activity seen in recent national statistics. But it also raised the risk of a relapse in parts of the country as the virus flares anew.
“The bounce-back in the economy has happened,” said Summers, a Bloomberg contributor and professor at Harvard University. “We’re not going to see a lot more bouncing back until we get a vaccine.”
This article was provided by Bloomberg News.