Las Vegas Review-Journal (Sunday)
Data spotlights economic worries Layoffs, weak consumer spending amid virus case spikes
WASHINGTON — Gripped by the accelerating viral outbreak, the U.S. economy is under pressure from persistent layoffs, diminished income and nervous consumers, whose spending is needed to drive a recovery from the pandemic.
A flurry of data released last week suggested that the spread of the virus is intensifying the threats to an economy still struggling to recover from the recession that struck in early spring.
The number of Americans seeking unemployment aid rose last week for a second straight week to 778,000, evidence that many employers are still slashing jobs more than eight months after the virus hit. Before the pandemic, weekly jobless claims typically amounted to only about 225,000. Layoffs are still historically high, with many businesses unable to fully reopen and some, especially restaurants and bars, facing tightened restrictions.
Consumers increased their spending last month by just 0.5 percent, the weakest rise since the pandemic erupted. The tepid figure suggested that Americans remain anxious with the virus spreading and Congress failing to enact any further aid for struggling individuals, businesses, cities and states. Also, the government said Wednesday that income, which provides the fuel for consumer spending, fell 0.7 percent in October.
The spike in virus cases is heightening pressure on companies and individuals, with fear growing that the economy could suffer a “double-dip” recession as states and cities reimpose curbs on businesses. The economy, as measured by the gross domestic product, is expected to eke out a modest gain this quarter before weakening
— and perhaps shrinking — early next year. Mark Zandi, chief economist at Moody’s Analytics, predicts annual GDP growth of around 2 percent in the October-December quarter, with the possibility of GDP turning negative in the first quarter of 2021.
Economists at JPMorgan Chase have slashed their forecast for the first quarter to a negative 1 percent annual GDP rate.
“This winter will be grim,” they wrote in a research note.
Zandi warned that until Congress agrees on a new stimulus plan to replace a now-expired multi-trillion-dollar aid package enacted in the spring, the threat to the economy will grow.
“The economy is going to be very uncomfortable between now and when we get the next fiscal rescue package,” Zandi said. “If lawmakers can’t get it together, it will be very difficult for the economy to avoid going back into a recession.”
Some corners of the economy still show strength, or at least resilience. Manufacturing is one. The government said Wednesday that orders for durable goods rose 1.3 percent in October, a sign that purchases of goods remain solid even while the economy’s much larger service sector — everything from restaurants, hotels and airlines to gyms, hair salons and entertainment venues — is still struggling. But economists caution that factories, too, remain at risk from the surge in coronavirus cases, which could throttle demand in coming months.
And sales of new homes remained steady in October, the latest sign that low mortgage rates and a paucity of properties for sale have spurred demand and made the housing market a rare economic bright spot.
But at the heart of the economy are the job market and consumer spending, which remain especially vulnerable to the spike in virus cases. Most economists say the distribution of an effective vaccine probably would reinvigorate growth next year. Yet they warn that any sustained recovery will hinge on whether Congress can agree soon on a sizable aid package to carry the economy through what could be a bleak winter.
“With infections continuing to rise at an elevated pace and curbs on business operations widening, layoffs are likely to pick up over coming weeks,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
The government said the total number of people who are continuing to receive traditional state unemployment benefits dropped to 6.1 million from 6.4 million the previous week. That figure has been declining for months. It shows that more Americans are finding jobs and no longer receiving unemployment aid. But it also indicates that many jobless people have used up their state unemployment aid — which typically expires after six months.
When the viral outbreak struck in early spring, employers slashed 22 million jobs in March and April, sending the unemployment rate rocketing to 14.7 percent, the highest rate since the Great Depression. Since then, the economy has regained more than 12 million jobs. Yet the nation still has about 10 million fewer jobs than it did before the pandemic erupted.
All of which has left many Americans anxious and uncertain. The Conference Board, a business research group, reported Tuesday that consumer confidence weakened in November, pulled down by lowered expectations for the next six months.