Can the economy really come roaring back from the coronavirus recession as soon as this summer, as President Donald Trump has promised?
Some economists say the answer is yes. An economy that was in good shape before the steep and sudden free-fall triggered by the outbreak just as quickly can be jolted back to life, reclaiming nearly all its former luster.
In fact, that’s largely what the massive $2.2 trillion stimulus package signed into law by President Trump Friday is intended to do: Hold the nation’s $21 trillion economy together with a kind of duct tape for a few months by providing spending money to laid-off workers and teetering businesses.
But many economists say the comeback is likely to be far more halting. Growth could pick up strongly this summer but still fall well short of its former pace, with the recession’s after-effects lingering well into next year as consumers remain skittish about venturing out to restaurants and other gathering spots. Some of the damage could even be lasting, leaving a smaller economy than would have been the case without the pandemic.
“It’s not an on-off switch,” says Jonathan Millar, deputy chief US economist at Barclays.
“I don’t think there’s any chance we get back to where we were anytime in the near future,” says Mark Zandi, chief economist of Moody’s Analytics.
Of course, the strength of the recovery hinges on the course the virus takes. It has shut down 30% to 40% of America’s economy, with nonessential businesses such as restaurants, stores and movie theaters shuttered by law or by choice and the travel and hotel industry at a near standstill. In the week ending March 21, a record 3.3 million Americans filed initial unemployment insurance claims, reflecting a staggering number of layoffs. Some economists are forecasting a similarly dire total for last week.
Under a likely scenario, top health officials believe, the outbreak could peak in May or June, allowing businesses across the country to gradually reopen by summer.
But a later peak or a virus that returns in the fall could worsen the economic damage.
It could be a swift rebound
In the best-case scenario, Senior Economist Jacob Oubina of RBC Capital Market says there’s no reason an economy placed in a coma for a couple of months to contain the spread of the virus can’t be walking around and looking like its old self once the threat has eased.
“The bounce-back can be very strong,” he says.
Until then, he believes, the stimulus can hold the economy in a sort of suspended animation. Owners of businesses with fewer than 500 employees who apply are virtually assured of receiving loans guaranteed by the Small Business Administration to pay wages and operating costs. The loan amount covering eight weeks of such expenses will be forgiven as long as the business holds on to its employees or hires back any who have been laid off, even if normal operations are temporarily shut down.
The idea: Maintain company ties with employees and avoid an enormously disruptive game of musical chairs in which workers are seeking jobs and businesses are hunting for new staffers just as the economy bubbles back to life. “I don’t have to be scrambling for people,” Oubina says.
Meanwhile, workers who lose their jobs, including contractors, are eligible for 39 weeks of state unemployment benefits that will be supplemented by $600 weekly from the federal government for four months. That means many restaurant, retail and hotel workers will be earning $1,000 a week, more than their regular paychecks in many cases, Oubina says. That, he says should allow them to make rent, utilities and other payments during the crisis and spend robustly after it’s over. Oh, and to further juice spending, most Americans, even those still working, will receive a one-time $1,200 check from the government.
And keep this in mind — the economy was on solid footing before the outbreak, Oubina says. During the financial crisis and Great Recession of 2007-09, millions of Americans had lost their homes and many were burdened by historically high debt. Banks pushed to near bankruptcy by their risky real estate loans were hesitant to lend despite government aid.
“We have none of that right now,” Oubina says.
Oubina predicts the economy will contract by an annual rate of 10% in the second quarter but then surge by 12% in the third quarter and advance a still-healthy 3% the final three months of the year and in 2021.
A slower climb may be more likely
Other economists say the rebound won’t be nearly as neat and simple. Many Americans will likely be leery of flying and going to restaurants, movie theaters and hotels even if government and health officials give a qualified all-clear signal by summer. Thirty percent of Americans surveyed say it will take at least four months after the virus spread flattens for them to go out to dinner again, while 44% say it will take that long for them to go to the movies, according to a Harris Poll survey conducted over the weekend and set to be released Tuesday.
“I’m not jumping back into the fray that quickly,” says Dagny McDonald, 53, a TV news producer who lives in Charlotte, North Carolina. “Maybe we should be a little more careful…I’m definitely on pause.”
McDonald says she’ll feel more comfortable resuming normal activities after a vaccine is ready, perhaps by mid-2021.
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In China, which is about six weeks ahead of the U.S. in the coronavirus timeline, factories, electricity demand and other parts of the economy are returning to normal but consumer spending, especially for big-ticket items, is still constrained.
The stock market’s huge sell-off, which has clobbered workers’ 401(k) plans and wealth, is also likely to make Americans warier of spending, Zandi says.
The travel and leisure industry, which Moody’s says makes up about 10% of gross domestic product, could take even longer than other sectors to recover. Fifty-seven percent of respondents in the Harris survey say it will take four months or longer for them to take a plane flight; 54% say it will take that long for them to stay at a hotel.
“People are going to be very reluctant to step on a plane,” Millar says.
Will loans arrive fast enough?
And while small businesses are can draw from the $350 billion in SBA loans, it’s not clear how quickly the government can integrate complex systems with the nation’s banks and release the money, says Ami Kassar, CEO of MultiFunding, a small business loan advisor. Treasury Secretary Steven Mnuchin says the loans will be available starting Friday. But Kassar thinks it will take at least a month to have a glitch-free system in place.
Meanwhile, he says, most small businesses have a few weeks to a few months of cash on hand, depending on the size of the enterprise.
OC Facial Care Center of Orange County, California, had to temporarily close down by state order and has laid off all six employees, says co-owner Daniel Robbins. He’ll dip into his personal savings to pay about $8,000 in rent and loan payments due April 1.
Yet, “In order to survive, we essentially have to have” the SBA loan before May 1, Robbins says.
Zandi reckons hundreds of thousands of the nation’s 30 million small businesses will shut down because they don’t know how to apply for a loan or won’t get it in time.
Baby boomers shut it down
Also, about 41% of small firms are owned by baby boomers who are close to retirement, according to Guidant Financial. Many will simply close sooner than they planned rather than go through the hassle of seeking a loan, says Jessica Fialkovich, president of a western branch of Transworld Business Advisors, a broker for small business mergers.
Anthony Whitham, 65, is learning toward shuttering Festive Cup Coffee, the Denver coffee and gift shop he co-owns with his wife, as early as Tuesday, when their lease is up.
“There’s too much uncertainty,” he says, noting the couple is financially set for retirement and their roughly 45-seat shop has been losing customers to Starbucks, which has kept its drive-thru open during the outbreak. “I’d have to get that business back from them.”
Larger companies are also at risk despite the stimulus measure’s $500 billion bailout to airlines and other industries. The share of large firms with negative cash flow — more money going out than coming in – is likely to increase by 23% after the coronavirus crisis, Goldman Sachs estimates. Although financially healthy corporations can take advantage of the additional credit recently announced by the Federal Reserve, it’s not clear if companies on shakier financial ground can do so as well, Goldman says.
At the end of this year, Zandi estimates the economy will still be 1.8% smaller than it was at the end of 2019 and won’t return to its GDP high-water mark until the second quarter of next year. Millar figures the economy will be 3.6% below its peak in 2021.
Remote work catches on, hurting construction
Some of the after-effects could lead to lasting changes that further crimp the economy over the longer term. Many companies could continue the work-at-home set-ups they’ve adopted during the outbreak, hammering office building construction, says Joseph Brusuelas, chief economist of consulting firm RSM.
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Some firms are also likely to replace corporate meetings and events with video apps such as Teams and Zoom, as they did during the outbreak, Zandi says.
John Bibbo, president of Event Source and Panache Events — which provide furniture, linens and other accessories for weddings, graduations, corporate events and other gatherings — has had to lay off all but 12 of his 160 or so employees at six offices around the country. He’s counting on an SBA loan to keep him afloat beyond the two months in cash remaining in company coffers.
But he worries about the possibility of a new reality of fewer business events. “It’s just going to be different,” he says. “It’s a big setback.”
NWT says its economy is weathering Covid-19 better than others – Cabin Radio
The NWT’s economy will come out of Covid-19’s initial months damaged but in better shape than other parts of Canada, the territory said on Friday.
The territorial government is forecasting a 3.3-percent contraction in its economy this year, which it says is “significantly less than the national average of 8.2 percent forecast by the Conference Board of Canada,” an economic think-tank.
Despite steep declines in the tourism and transportation industries, the territory said “steps taken to keep the diamond mines and the public sector active” had softened the pandemic’s blow.
Mining and government are by far the territory’s largest employers. The Ekati mine has suspended activities but the Gahcho Kué and Diavik mines remain fully operational.
The private sector is in worse shape. A GNWT-commissioned survey of businesses showed that 81 percent of NWT companies had experienced a “significant decrease” in revenues.
Tourism and transportation industries were the hardest-hit, telling the government they saw revenues drop by an average of 71 percent.
On the other hand, more than 90 percent of businesses surveyed by the territory in April and May reported they expected to make it through the pandemic.
Consumer spending and small business spending has rebounded since May, the territory said, and 71 percent of NWT residents surveyed were planning to travel within the territory in the next six months.
The Department of Industry, Tourism, and Investment said the results of third survey – carried out in June to examine the impact on consumer demand – is coming soon.
According to the territory, the various surveys are “part of … ongoing work to better understand the effects of Covid-19 on the NWT and how best to respond to them.”
Saskatchewan economy adds 30,000 jobs in June as businesses open up again: Statistics Canada – CBC.ca
Saskatchewan added more than 30,000 new jobs in June as businesses began to open back up from the COVID-19 pandemic.
Saskatchewan’s unemployment rate dipped to 11.6 per cent in June from a high in May of 12.5 per cent, according to a Statistics Canada report on Friday.
At the national level Canada added almost one million jobs in June.
The national jobless rate fell to 12.3 per cent, down from the record-high of 13.7 in May. There are still 1.8 million fewer jobs in Canada today than there were in February.
Jason Childs, an associate professor of economics at the U of R, said he was pleasantly surprised by the employment gains.
“To be gaining 30,000 jobs provincially and nearly a million jobs nationally is some unexpected good news, which is nice for a change,” he said.
The growth in Saskatchewan was split between 22,000 full-time jobs and 10,000 part-time jobs.
Childs cautioned that the jobless rate in the province is still more than six per cent higher than it was at this time last year, when it was 5.2 per cent, and there still about 40,0000 fewer jobs than before the pandemic.
“[Some people] don’t appreciate how deep the hole we’re in is and this is not a hole we’re going to get out of quickly,” Childs said. “[Unemployment] has more than doubled from this time last year.”
All those job losses have not been evenly distributed throughout the population.
Young workers are taking the brunt of the job losses in the province.
One in five people 15 to 24 years old are without a job, compared to 8.6 per cent of workers over the age of 25.
Unemployment among First Nations is 18.4 per cent and the Métis jobless rate is 17.3 per cent.
Childs said both those groups already have higher unemployment and they will have a harder time getting back in the workforce.
“People looking for that first job are going to have a really tough time right now because anything that opens up you’re probably going to be competing with somebody who’s got a lot more experience,” he said.
The one sector hit hardest by the pandemic is food and accommodation, where an estimated 400,000 workers across the country are still without a job.
Childs said those jobs are dependent on consumer spending and tourism, and that people’s financial habits have changed during the pandemic.
“I still think we’re going to see a drag [on the economy] as we get what’s called the Paradox of Thrift,” Childs said.
“As people begin to save for their own protection we may see that drag on economic activity as consumption falls off.”
He said people are beginning to cut back on ‘luxuries’ like going out to eat or grabbing a cup of coffee.
“That’s a place where you can cut back fairly easy,” he said.
“People are dealing with a massive amount of uncertainty right now and uncertainty breeds caution and doesn’t breed spending.”
Childs said no amount of fiscal stimulus is going to solve this crisis without consumer confidence.
“You need to get people back to a place where they feel comfortable and safe spending in order to return to the previous level of economic activity,” he said. “Or we’re just gonna have to get used to this.”
Jason Kenney sees supply shortage in oil and gas when global economy rebounds from COVID-19 – Edmonton Journal
COVID-19 has put Canada in a “deep fiscal hole,” and the only way to get out of it is to spark the oil and gas sector, Premier Jason Kenney said Friday.
Noting the federal government’s announcement Wednesday it expected to post a $343-billion deficit, Kenney expressed optimism that demand for oil would bolster Alberta’s recovery.
“When the global economy comes back from COVID, when demand returns for oil and gas, we are going to see something of a supply shortage, because of the upstream exploration that has been cancelled,” he said at a Friday news conference.
“So we’ll see prices go up, and that will be a great opportunity for Alberta especially as we make progress on pipelines,” Kenney said.
At Friday’s market close, West Texas Intermediate crude was priced at just over US$40.
TC Energy’s Keystone XL pipeline, which the government of Alberta has committed $7 billion in financial support, faced a legal hurdle this week when the U.S. Supreme Court refused to let construction begin on the project.
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