Experts warn of rushing recovery.

Financial woes, new round of coronavirus would be even worse

There are growing concerns that any economic recovery later this year could prove short-lived because of a possible deadly resurgence of the coronavirus and a late spike in bankruptcies and defaults, a wicked combination that could cause households and businesses that barely survived the spring lockdown to go under later.

White House officials have touted the possibility of a V-shaped recovery as soon as this summer, pining for a swift rebound once businesses reopen on a staggered basis. But some economists believe a W-shaped recovery is increasingly likely, in part because efforts to find a vaccine are likely to take at least a year and millions of Americans and businesses are piling up debt without an easy ability to repay.

“Pretending the world will return to normal in three months or six months is just wrong,” said Diane Swonk, chief economist at Grant Thornton. “The economy went into an ice age overnight. We’re in a deep freeze. As the economy thaws, we’ll see the damage done as well. Flooding will occur.”

A W-shaped recovery could occur if the economy starts looking better and then there’s a second downturn later this year or next. The “W” could be triggered by reopening the economy too quickly and seeing a second spike in deaths from covid-19, the disease caused by the coronavirus.

Centers for Disease Control and Prevention Director Robert Redfield said this week that “there’s a possibility that the assault of the virus on our nation next winter will actually be even more difficult than the one we just went through.”

This could cause many businesses, which were barely hanging on, to shutter again. Many Americans could become even more afraid to venture out until a vaccine is found.

Something else could also cause a “W” pattern: A wave of bankruptcies and defaults later this year. As companies go belly

up, a domino effect ensues: Workers aren’t rehired, suppliers aren’t paid, and fear rises about who will be next to fall.

“I really worry a lot about a Wshaped recovery,” said Ernie Tedeschi, a former Treasury Department economist. “People who do have jobs are going to save more than normal. That’s perfectly rational, but it delays the recovery.”

Early warning signs are here. Major retailers such as Macy’s, Neiman Marcus and Lord & Taylor face significant financial duress, and analysts anticipate bankruptcies ahead in the retail sector. Oil prices plunging below $20 a barrel is another blow to America’s fragile energy sector that will reverberate for months.

Rystad Energy predicts more than 500 U.S. companies will go bankrupt by the end of 2021.

Congress and the White House already have committed nearly $3 trillion to arresting the economic fallout from the coronavirus, and the Federal Reserve also has stepped in with its own emergency measures. But many of those programs are designed to be short-lived and won’t offer much relief later this year.

The House of Representatives is expected to vote today on a $484 billion bill that would help small businesses and hospitals, but policymakers appear split on what to do next, with some Republicans starting to say they should slow down before extending more money.

Meanwhile, state and city leaders have urged the White House and Congress to provide hundreds of billions of dollars to help them avoid drastic reductions in services and programs — and mass layoffs.

Many banks and mortgage companies have offered to give many Americans more time to pay their bills, but it’s unclear what will happen once this grace period ends.

Constance Hunter, chief economist at KPMG, expects job losses of “at least 25 million” this spring, a sky-high level not seen since the Depression. An equally frightening number that’s received little attention is that the median forecast for the unemployment rate by the end of the year is 10 percent — meaning more than 15 million Americans would still be out of work in December.

Even among people who still have jobs, 25 percent fear they’ll be laid off or furloughed in the coming year, according to a Gallup poll released Wednesday. Pay cuts also are becoming common, with over 14 percent of people still employed getting lower pay or fewer hours in March, according to Gusto, a payroll processing company.

“The full restoration of consumer confidence will be more difficult and will take longer to complete than following any other recession since the Great Depression,” wrote Richard Curtin, head of the University of Michigan Survey of Consumers.