Resurgence of virus and lockdowns threatens US economic recovery

People wearing masks walking along King Street in Charleston, South Carolina, on July 18, 2020. PHOTO: AFP/GETTY IMAGES

WASHINGTON (NYTIMES) - The US economy is headed for a tumultuous autumn, with the threat of closed schools, renewed government lockdowns, empty stadiums and an uncertain amount of federal support for businesses and unemployed workers all clouding hopes for a rapid rebound from recession.

For months, the prevailing wisdom among investors, Trump administration officials and many economic forecasters was that after plunging into recession this spring, the country's recovery would accelerate in late summer and take off in the fall as the virus receded, restrictions on commerce loosened, and consumers reverted to more normal spending patterns. Job gains in May and June fueled those rosy predictions.

But failure to suppress a resurgence of confirmed infections is threatening to choke the recovery and push the country back into a recessionary spiral - one that could inflict long-term damage on workers and businesses large and small, unless Congress reconsiders the scale of federal aid that may be required in the months to come.

The looming economic pain was evident this week as big companies forecast gloomy months ahead and government data showed renewed struggles in the job market. A weekly census survey on Wednesday (July 15) showed 1.3 million fewer Americans held jobs last week than the previous week. A new American Enterprise Institute analysis from of shopper traffic to stores showed business activity had plunged in the second week of July, in part from renewed virus fears.

Amazon on Wednesday extended a work-from-home order for eligible employees from October to January, and Delta Air Lines said on Tuesday it was cutting back plans to add flights in August and beyond, citing flagging consumer demand.

The nation's biggest banks also warned this week that they are setting aside billions of dollars to cover anticipated losses as customers fail to pay their mortgages and other loans in the months to come.

May and June will prove to be "easy" in terms of recovery, Ms Jennifer Piepszak, the chief financial officer of JPMorgan Chase, said during an analyst call on Tuesday. "We're really hitting the moment of truth, I think, in the months ahead," she said.

Mr Jamie Dimon, the bank's chief executive, said much of the economic pain had been blunted by federal spending, which was now running out. "You will see the effect of this recession," he said.

Some companies that used small-business loans to retain or rehire workers are now beginning to lay off employees as those funds run out while business activity remains depressed. Expanded benefits for unemployed workers, which research shows have been propping up consumer spending throughout the spring and early summer, are scheduled to expire at the end of July, while more than 18 million Americans continue to claim unemployment.

Many states are already renewing lockdowns, including California, where officials have ordered indoor bars, restaurants, gyms and other establishments to close. College sports conferences are beginning to cancel fall sports, including the lucrative football season, and concert tours are out of the picture.

"The earlier-than-anticipated resumption in activity has been accompanied by a sharp increase in the virus spread in many areas," Dr Lael Brainard, a Federal Reserve governor, said on Tuesday. "Even if the virus spread flattens, the recovery is likely to face headwinds from diminished activity and costly adjustments in some sectors, along with impaired incomes among many consumers and businesses."

Most economists abandoned hope for a "V-shaped" recovery long ago. Now they are warning of an outright reversal, with mounting job losses and business failures. And this time, much of the damage is likely to be permanent.

"Our assumption has to be that we're going into re-lockdown in the fall," said Mr Karl Smith, the vice-president of federal policy at the conservative Tax Foundation in Washington.

Trump administration officials have suggested a willingness to negotiate with Democrats on unemployment benefits, small-business aid and possibly another round of stimulus checks, while also pushing for business tax cuts that have found little traction in Congress. Some Senate Republicans want to cut off pandemic spending increases entirely, though their leadership has expressed openness to a deal if it includes protections from lawsuits for businesses that reopen.

Small businesses around the country say that if lockdowns persist without some type of additional financial cushion from Congress, they will be faced with a dire choice.

At Sonoma Fit, a three-gym chain in Northern California, business was finally starting to stabilise this month after weeks of lost revenue and extreme uncertainty. Old customers were starting to come back. New ones were signing up. The thousands of dollars that Jennifer and Adam Kovacs, the owners, had spent to overhaul their facilities to allow for social distancing seemed to be paying off.

Then on Monday, a friend called to tell Ms Jennifer Kovacs that the governor had just ordered gyms in much of California to close again. Ms Kovacs said she was "blindsided" - but she tried to hide it from her 17-year-old daughter, who was working at the front desk.

About three-quarters of Sonoma Fit's nearly 5,000 members stuck with them through the first shutdown, but Ms Kovacs said she thought they would be lucky to retain half their members this time. She said she could not imagine business returning to normal as long as rules differed by county and industry - and were subject to change at a moment's notice.

"I really cannot express the level of fear and frustration and helplessness that we feel," Ms Kovacs said. "This slow reopening isn't working. Shut down everything, shut down every single thing, and keep us home for three weeks. I'd rather do that than this off-on, off-on, off-on. Because every time we do that, we're losing thousands of dollars."

Mr Trump's advisers continue to predict that the economy will rebound sharply in the months ahead, and the President has made increasingly insistent calls for a full reopening of schools this fall. Many economists agree that the economy cannot fully recover - let alone grow - if millions of young children remain at home without viable childcare options. Yet failure to control the virus has made reopening a risky trade-off.

Some of the nation's largest school districts, including Los Angeles and San Diego, have announced that they will not immediately return to in-person classroom instruction when the new school year begins. In New York and other large public school districts around the country, officials are preparing to bring students back for only part-time instruction and have warned parents they could shut down again if cases rise.

Those announcements have not been accompanied by government-funded programmes that economists say would help schools open safely or ensure access to child care for millions of Americans who are struggling to juggle parenting and work - a group that is disproportionately made up of women who are not white. Even as Mr Trump pushes a return to classrooms, many districts are facing pandemic-induced budget shortfalls.

Census figures from 2019 analysed by Professor Melissa S. Kearney, a University of Maryland economist who directs the Economic Strategy Group at the Aspen Institute, show that nearly one-quarter of American workers - about 38 million adults - have at least one child under age 13 at home. The share is higher among so-called essential workers, who are required to report to their jobs during lockdowns, and it rises to one-third for workers in low-income families.

Only 16 per cent of all workers with a young child have a nonworking spouse at home who could plausibly care for children who are not in school in order for a spouse to report to work, Prof Kearney said.

"There are millions of workers that can't go back to work if their kids don't have a safe place to be, most days a week," Prof Kearney said. "This is not, get schools open or don't get schools open. We need to figure out a way to get schools open safely."

The country has now tried two strategies to raft its economy through the pandemic: shutting down commerce to slow the spread of the virus and rapidly lifting restrictions on activity to get business humming again. It has not followed through on either approach.

Officials in Florida, Texas and other states began a rapid reopening of their economies in May, while the nation's infection rate remained higher than those of other wealthy nations - and well before the federal government had a plan to ensure the safety of anything resembling normal business activity. An ensuing surge of cases in the Southeast and Southwest has forced some governors to reimpose limits like shutting down bars.

Restaurants, retailers and other businesses that have partly adapted to the new realities of the crisis, often by moving some operations outdoors, must now brace for the prospect of at least several more months of constricted revenues as colder weather sets in. Broadway has shuttered until 2021. Popular music groups have canceled tours, leaving independent concert venues with no way to earn money to survive.

"I am normally a very optimistic person, and I have never seen an entire industry face an existential struggle like we are facing right now," said Ms Audrey Fix Schaefer, a communications director for music venues in Washington, D.C. "It is that dire."

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