The ‘Rocket Ship’ Economic Recovery Is Crashing
Real-time data suggest a quick resurgence of business activity is leveling off nationally — and reversing in states like Arizona and Texas.
The nascent restart of America’s economy has begun to stall as a surge in new coronavirus cases dampens consumer and business activity across states like Florida, Texas and Arizona.
After weeks of a pandemic-induced contraction, the economy had begun rebounding faster than many economists expected from mid-April into June, as infection rates stabilized or fell across much of the country and the federal government injected trillions of dollars in the economy. States began to reopen, shoppers increased their spending and employers started to hire back furloughed workers.
But there were signs in late May and early June that the pace of recovery was beginning to slow, even before another wave of infections swept through states that had moved quickly to ease limits on public gatherings. In recent weeks, as that wave intensified, real-time economic data began to show the economy moving backward as rising infection fears spooked consumers.
The national jobs report, scheduled to be released on Thursday by the Labor Department, is expected to obscure that reversal. Forecasters expect the report, drawn from data compiled in the middle of the month, to show the economy added about three million jobs in June. That would represent progress, but nowhere close to victory against the more than 20 million jobs shed at the trough of the recession.
Recent detailed data tell a more sobering story. New job postings on the employment platform ZipRecruiter fell in June after rising sharply in May. Data on small business openings and employment from Homebase, which provides scheduling and time tracking software for businesses, show that small business employment and openings worsened over the past week, after plateauing for much of June. The Homebase data showed a nearly 40 percent improvement for small business activity in May; across all of June, that fell to 6 percent.
States suffering infection surges, like Texas, began to see layoffs and business closings even before officials moved to reimpose some restrictions on economic activity, such as closing bars.
Foot traffic to retailers and other businesses declined in the third week of June in Houston, Orlando, Jacksonville, Phoenix and other large cities across the southern states where infections have spiked, according to an analysis of Safegraph.com data by researchers at the American Enterprise Institute in Washington. Data from 40 million households compiled by the financial firm Commerce Signals shows that after weeks of improvement, credit and debit card spending declined at the end of May across most states.
That is a pattern economists have been dreading, and a departure from the “rocket ship” recovery that President Trump promised in June. Federal Reserve officials have warned publicly that recovery appears perilous and highly dependent on public health. “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” Fed Chair Jerome H. Powell told a House committee on Tuesday. “A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”
The next few months of recovery could be rocky even if the current infection surge abates. Job losses have slowed but remain at levels higher than in any previous recession, and a growing share of workers now report they have been laid off permanently, rather than temporarily furloughed. A significant share of small businesses have still not reopened, even as states increasingly lift restrictions on their operations, suggesting some of them may be shuttered for good. By many measures, business activity and employment remains down by a quarter or more from pre-crisis levels.
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Child care constraints are keeping many workers, particularly Black and Hispanic women, from returning to work, according to weekly census survey data analyzed by Ernie Tedeschi, an economist at Evercore ISI.
Some economists say the slowdown was predictable — and a natural reaction to Americans attempting to rush back toward normalcy before the virus was under control.
When it comes to the recovery, “the virus is the boss, not the governor, not the mayor, not the president,” said Austan Goolsbee, a former top economist for President Barack Obama and the author of a recent study that found fear of infection — and not government lockdown policies — drove nearly all of the contraction in economic activity this spring.
Mr. Goolsbee, who is a professor at the University of Chicago’s Booth School of Business, and his colleague Chad Syverson used cellular phone records to track visits to businesses during the pandemic.
The research found that just over one-tenth of the drop was attributable to lockdowns themselves, a share that held constant as areas began to lift restrictions in May. The authors say that suggests that if infections accelerate, public officials will not be able to avoid another economic shock simply by refusing to shut down activity. Consumers will make that decision for them.
When cases of the virus first began rising earlier this year, many economists hoped that, with the right set of policies, the United States could avoid most long-term economic damage. The idea was that by providing trillions of dollars in support for households and businesses, the federal government could, in effect, keep the economy in stasis until the health crisis had passed.
There are signs that those efforts were at least partly successful. Nearly a third of the people who lost jobs during the pandemic have already returned to work, according to a poll conducted for The New York Times in early June by the online research platform SurveyMonkey. Another quarter expected to return to their old jobs within the next month.
But that still leaves close to half of all those who have lost jobs still out of work, with no immediate prospects for a return. That group is disproportionately Black and Hispanic, and concentrated in low-wage service industries, the survey found. Perhaps unsurprisingly, those respondents are far less sanguine about the direction of the economy than Americans overall.
“How can we have a recovery when millions of people are now permanently unemployed?” asked John Singh, a survey respondent in Los Angeles. “How can we have an economy when big companies have just thrown in the towel?”
Mr. Singh’s husband was furloughed from his job at a large corporation, but returned to work — from home — this week. The break was a loss of income, but not a major career disruption.
It is a different story for Mr. Singh. He runs a small public relations agency — he is the only full-time employee — and his main client is in film distribution. When theaters shut down in mid-March, his revenue dried up overnight. With theaters expected to be among the last industries to return to normal, he doesn’t expect his business to bounce back anytime soon.
The Homebase data suggest a yawning divide in the experiences of businesses that never closed for the pandemic and those that shut down as it began to spread. Employee hours and total number of employees are running just above pre-crisis levels at retailers that never closed. But many businesses have not reopened, which Homebase officials said in a report this week could be a sign that as many as 20 percent of all small businesses will permanently close amid the crisis.
“For many of our business owners, it doesn’t yet make sense to open at the level of customer demand they’re seeing,” said Ray Sandza, vice president of data and analytics at Homebase.
Data from Kronos, which provides time-management software and related services, tells a similar story. The number of shifts worked by the company’s roughly 30,000 U.S. customers have rebounded strongly since mid-April but remain down 15 percent compared to before the crisis. Now the pace of growth has slowed in Georgia and some other early-reopening states, and the number of shifts worked has fallen outright in South Carolina and Florida since the beginning of June.
“We bounced off the bottom, and it was a sharp bounce off the bottom,” said Dave Gilbertson, vice president of strategy and operations at Kronos. “Now is going to be what really proves out the full pace of the recovery, and it’s going to take longer.”
Several factors could complicate that next phase. For one, many day care centers remain closed or limited, restricting some parents’ ability to return to work. “I don’t see how parents get back to work in a meaningful way if their kids can’t be in day care or back in school,” said Melissa S. Kearney, a University of Maryland economist who directs the Aspen Institute’s Economic Strategy Group. “Figuring out how to make that happen needs to be at the top of the list.”
Ms. Kearney warned in a report with several co-authors in June that the recovery could stall if Congress fails to maintain the support for people and businesses that has helped buoy consumer spending. Senators are poised to leave Washington this week, returning in mid-July, with negotiations on a new economic aid bill still in their early stages.