COVID-19 Rebound Hindering Economic Recovery

July 1, 2020

 

 

Many economists have viewed the economic effect of the COVID-19 pandemic as a V shaped model, describing a drastic economic downfall followed by a swift recovery. Based on job reports from May and June, posting 2.5 and 3 million citizens employed respectively, it would appear our economy is in recovery. However, a rebound or 2nd wave of the coronavirus threatens our economy’s ability to quickly recover and even highlights the possibility for further economic downfall. The United States is currently recording 40,000 new infections daily, double previous records set in May. Although it is heavily concentrated in a few Western/Southern Central states, such as California, Arizona, and Texas, the states most affected makeup nearly a half of the United States’ GDP. Furthermore, this recent sharp rise in COVID cases comes at a crucial time for our economic rebound as states are finally beginning to loosen social distancing practices and subsequently, jobs are returning to the American people. With infection rates booming, states will likely have to respond accordingly and slow down their reopening, causing job furloughs to extend or even turn into permanent job losses.  As is, nearly half of the US population is unemployed, so regaining employment numbers is the utmost importance to rising out of our current recession. As the infections continue to rise, we can expect to see a consequential toll on our economy. Currently, second quarter predictions, according to CNBC/Moody’s Analytics Rapid Update, have the US GDP dropping approximately 34 percent in the second quarter and not as strong third quarter rebound at 13 percent. If COVID-19 infection rates continue to soar, we can expect more modest future forecasts.

 

The COVID-19 surge also intensifies the pressure regarding governmental supplied fiscal stimulus, as the current unemployment support terminates at the end of July. Democrats have voiced their desire for upwards of a 3 trillion dollar support package, however, it is expected that the bill ends up being closer to 1 trillion dollars. Overall, the COVID-19 infection rates need to be mitigated in order to return to an upward trending economic status.

 

Keith Knutsson of Integrale Advisors commented that, “A COVID-19 rebound can prove detrimental to the rapid recovery of the United States economy.”

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July 1, 2020

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