Some jobs are coming back, but economy will need years to heal
Sales were stronger than expected when Macy's reopened its first stores in early May, after a nearly seven-week coronavirus shutdown. But that initial surge soon fizzled, leaving the retailer's brick-and-mortar business down more than one-third.
Some stores reopened in malls where restaurants and movie theaters remained closed, limiting foot traffic. Outlets in major cities suffered from the absence of foreign tourists. And recent coronavirus flare-ups across the South and West convinced executives they faced a grueling recovery that could take until 2022.
"The situation is really fluid. And it changes day by day," Jeff Gennette, Macy's chief executive, told investors this week on an earnings call.
The same could be said of the entire U.S. economy, which has defied the most pessimistic forecasts yet still faces an uncertain trek back to its former heights. With the unemployment rate at 11.1 percent, worse than at any point during the Great Recession, and output continuing to decline, the healing could go on for years.
Employers are rehiring workers faster than economists anticipated, at least as of mid-June when the latest Labor Department survey was taken. But more recent setbacks in the economic reopening, as the daily number of coronavirus cases topped 50,000 for the first time, have blackened the outlook.
"It's going to be pretty slow going. The bottom line is this is all about public health, public health, public health," said Narayana Kocherlakota, a former Federal Reserve Bank president. "This is absolutely a multiyear recovery."
More than half of the country has now paused or reversed plans to reopen for business, according to Goldman Sachs. Almost four months after the first shutdowns, the health situation is getting worse, not better, in states such as Florida, Texas, Arizona and California. New national data on credit card spending, restaurant reservations and small-business hours show that the recovery from the recession that began in February may already be losing steam.
On Thursday, the Congressional Budget Office released its new forecast, calling for the economy to expand at an annual rate of 12.4 percent in the second half of the year, down from the 15.8 percent it projected in May. That represents unusually rapid growth, but it will follow a three-month period that is widely expected to be the worst in modern history.
The Atlanta Fed's real-time model estimates that the economy shrank in the quarter that ended June 30 at a rate of 35 percent.
Still, the situation is not as bad as many economists feared. In March, as the economy plunged into the deepest recession in decades, many warned that the unemployment rate would hit 20 percent by summer.
On Thursday, in contrast, the Labor Department reported that the economy created 4.8 million jobs in June, shattering the record set in May. At the White House, President Trump took a victory lap, heralding the development as "spectacular ... record setting ... astonishing."
The president boasted of the rising stock market, robust retail sales, and a revival of consumer confidence. With customary bravado, he took credit for the rebound while laying the blame elsewhere for the plummet that had preceded it.
"This is not just luck, what's happening; this is a lot of talent," Trump said. "All of this incredible news is the result of historic actions my administration has taken working with our partners in Congress to rescue the U.S. economy from a horrible event that was formed, took place in China, and came here."
Indeed, Congress approved spending $3 trillion to rescue the economy while the Fed expanded its balance sheet by an additional $3 trillion to support lending to businesses, households and local governments.
Yet Democrats have charged that the president's failure to combat the coronavirus by encouraging the use of masks and implementing a national testing program helped fuel the latest surge in cases.
The economy remains badly wounded. Nearly 19.3 million Americans are receiving unemployment benefits, almost three times the peak during the worst of the 2008-09 financial crisis and up from just 1.7 million in early March.
The situation is still so dire that the Fed for the first time in its 107-year history has created a program to buy the corporate bonds of blue-chip companies such as Apple, Walmart and AT&T to facilitate lending.
Trump's salesmanship also risks opening a credibility gap between his rosy comments and reality. In a Fox Business interview on Wednesday, he again predicted a swift "V-shaped" recovery, an expectation that few economists outside his administration share. And he repeated his unfounded claim that the coronavirus will "just disappear" one day.
"We're headed back in a very strong fashion with a 'V,' and I think we're going to be very good with the coronavirus," the president said. "I think that at some point that is going to sort of just disappear."
Instead, the outlook is a start-and-stop recovery with the economy held hostage by a failure to contain the pandemic, some economists said. Adjusted for inflation, the economy will be smaller than it was at the end of 2019 until the middle of 2022, according to the CBO.
Megan Greene, an economist with Harvard University's Kennedy School of Government, expects the unemployment rate to increase in July. Many small businesses that took advantage of a government loan program for small businesses may exhaust their borrowings next month, and enhanced unemployment insurance payments will also expire unless Congress acts.
"It's a massive cash cliff for the economy," she said.
Elsewhere, Apple, which had been among the first retailers to close during the initial pandemic shutdown, this week shuttered 77 stores in seven states for a second time. Credit and debit card spending, which had recovered steadily since mid-April, fell back in the week ending June 27, according to JP Morgan.
The investment bank cited findings from a panel of 30 million Chase cardholders and said the decline was "surprisingly widespread across states and demographic groups."
Restaurant reservations also have lost ground in recent days. On July 1, bookings were down 64.7 percent from one year ago, having worsened from the 57 percent decline on June 27, according to the online dining service Open Table.
And Homebase, a provider of scheduling software, warned that small businesses were hitting a "reopening plateau." After a rush to reopen in May, progress in cities such as Houston and Phoenix has stalled, the company said. Up to 20 percent of small businesses might not survive, it added.
"Going forward, my expectation is it will be more mixed," said Nathan Sheets, chief economist at PGIM Fixed Income. "The biggest question is what happens with the virus. If we could get the virus out of the way, we have an economy that is itching to get back to normal."
There is ample evidence that the pandemic retains its iron grip on the $21 trillion economy.
In Texas, United Auto Workers Local 276 last week asked General Motors to halt production at its Arlington assembly plant out of concern over the spreading virus, a request the automaker refused as unnecessary in light of company safety protocols. "Every day we are setting new records in the number of people who are testing positive in the Dallas-Fort Worth area," the union said on its website.
In New York City, Mayor Bill de Blasio halted indefinitely plans to allow restaurants and bars to resume indoor dining.
In California, Gov. Gavin Newsom ordered mandatory business closures in 19 counties where the coronavirus is raging.
While the stock market gives off a scent of euphoria -- the tech-heavy Nasdaq sits at a record high -- bond investors are sending a different signal. The yield on the 10-year Treasury security sits at 0.67 percent, little different from where it traded in late March, and proof that traders anticipate anemic growth.
Continued cause for concern was evident in the 1.4 million Americans who filed for first-time unemployment benefits in the week ending June 27. That marked the 16th consecutive week that jobless claims have topped 1 million. Before March, the previous record had been 695,000 in 1982.
Companies in some of the states struggling amid the worst coronavirus outbreaks continue to let workers go, contrary to the president's cheery forecast. In Florida, Levy Premium Foodservice, which handles concessions at sports facilities that are home to the NBA's Miami Heat and Orlando Magic and Major League Baseball's Tampa Bay Rays, notified the state of plans to lay off or reduce by more than 50 percent the hours worked for more than 1,400 employees.
It may be years before many Americans can count on complete recovery.
Over the past 70 years, the unemployment rate has declined from its recession peaks by 0.85 percentage points per year, according to a recent paper by Robert Hall, an economics professor at Stanford University, and Marianna Kudlyak, a research adviser at the Federal Reserve Bank of San Francisco.
The Fed expects the unemployment rate to be 9.3 percent at the end of this year. If the economy replays its previous performance, it would take nearly seven years for the economy to get back to February's 3.5 percent jobless rate.