A rise in coronavirus cases in the most populous US states is halting consumer and business activity.
It was the missing cars that first alerted Maryann Ferenc: the economic rebound that she and many others had been hoping to see at Florida's Pass-a-Grille Beach was already in danger of vanishing.
"July 4 and you could find a parking spot all day long, you could find several parking spots all day long," says Ferenc, who owns a number of restaurants in the Tampa area as well as a boutique hotel along that stretch of the Gulf coast.
"That was the first indicator, and you could just notice the difference, through the entire weekend and then the following week, you saw that drop."
In the run-up to Independence Day, which the tourism sector had been counting on for a huge boost, the number of new coronavirus cases in Florida had been rising at an alarming rate, exceeding 10,000 a day for the first time. Since then the situation has deteriorated, with the state recording a record 15,299 infections on July 12.
The result is that even the tepid consumer business that had resurfaced as Florida emerged from its initial lockdown has faded.
The account of Ferenc — who is also the chair of the Tampa Bay chamber of commerce — is emblematic of the concerns gripping economists and policymakers about the state of the US economy.
Having overcome the initial coronavirus shock in March and April more rapidly than expected, aided by massive doses of fiscal and monetary stimulus, the rebound from the sudden recession is now being threatened by a surge in Covid-19 cases across many parts of the Sunbelt, including populous states like Florida, Texas and California.
The loss of economic momentum is already appearing in high-frequency data related to employment, restaurant bookings and mobility, all of which are flattening out. The impact is especially pronounced in the hardest hit states, as consumers again become more cautious and authorities pause or even roll back the process of lifting restrictions on economic activity.
According to an analysis of weekly data produced by Census Bureau about the economic impact of coronavirus, the share of US adults employed fell 1 percentage point from mid-June to early July, after it had been climbing steadily since early May.
"The economy is still very much depressed because of the out-of-control virus, and the virus is just getting more out of control," says Aaron Sojourner, a professor of economics at the University of Minnesota and a former senior economist of the White House council of economic advisers under Barack Obama who analysed the Census Bureau data. "If that trend is allowed to continue there's no reason we can't lose the gains we've made over the last couple of months and even see worse things in the future."
The question now is whether this is just a blip and the recovery will soon gather pace again, or whether the world's largest economy is heading for a relapse that would compound the damage to American businesses and households — and the global economy — already inflicted by the first hit.
Clear downside risks
"We've been warning all along that the solution to the recovery was an improving health situation. Once you started seeing the health situation deteriorate, you immediately got a pause in the recovery," says Lydia Boussour, senior US economist at Oxford Economics in New York. "Demand will start faltering, and we are already seeing that in some states. It means there is less mobility, it means there is less production and it also means that there will be more financial strains."
Senior Federal Reserve officials — who had from the beginning of the coronavirus crisis warned that the US economy was facing a long and difficult road back to normality — have been watching the real-time economic data with growing concern.
Lael Brainard, a Fed governor, said last week the US economy was still shrouded in a "thick fog of uncertainty" with "downside risks" dominating the outlook.
"Rolling flare-ups or a broad second wave of the virus may lead to widespread social distancing — whether mandatory or voluntary — which could weigh on the pace of the recovery and could even presage a second dip in activity," she warned.
Robert Kaplan, the president of the Dallas Fed, has even pleaded for Americans to wear masks, saying that adhering to the guidance of US health officials and beating down the virus's transmission rate would be more effective economic policy than anything additional fiscal or monetary stimulus could achieve.
Rising deaths and hospitalisations — which have had a severe impact on Texas in recent weeks — were having a "chilling effect on economic growth", he says.
A 'national narrative'
The headwinds hitting the US recovery are especially jarring given that the economy had been performing better than expected as America emerged from the initial lockdown period.
After shedding 22.2m jobs at the start of the pandemic in March and April, according to the Bureau of Labor Statistics, US employers quickly rehired 7.5m people to work in May and June, including 503,000 people in Florida. That was still a long way from the pre-pandemic state of the labour market, but an encouraging early sign.
Other indicators bounced back rapidly too, including retail sales, which rose by 7.5 per cent in June after a rise of 18.2 per cent in May, almost regaining the ground lost earlier in the year. Manufacturing also showed some life, with the Institute for Supply Management's index rising to a level of 52.6 per cent in June, pointing to an expansion of the industrial sector for the first time since February. But many economists fear that the upswing will prove to be unsustainable and susceptible to being reversed in the coming weeks and months, as a result of new outbreaks.
In California, America's most populous state and a big driver of the US economy, Democratic governor Gavin Newsom last week ordered a shutdown of all bars across the state, and banned indoor operations for restaurants, wineries, cinemas and museums.
Even in states like Florida led by Republican governors who are more reluctant to reimpose restrictions, anxiety over the spreading disease risks undermining the economic rebound. That caution may even extend to states and regions, including the north-east, which were hit hard in the early stages of the pandemic but have recently experienced much better numbers.
Liz Ann Sonders, chief investment strategist at Charles Schwab, the financial services group, says the slowdown is being felt "pretty much across the country" and not just in the Sunbelt states. "This pick-up in cases is enough to elevate fear, not just in those states but among businesses and consumers more broadly," she says. "This is a national narrative."
The University of Michigan's index of consumer sentiment dropped in July to 73.2, bringing it back down to near its April trough of 71.8 and losing the bulk of the gains made in June. Ed Bastian, chief executive of Delta Air Lines, told Fox Business Network last week that his company had seen "some nice traffic and revenues pick up" in June even in the stricken travel sector, yet worried that the improvement had stopped. "As the virus has grown, you know, demand has stalled out any additional growth," he added.
For the labour market, the big concern is that the endurance of the pandemic will translate into weaker jobs growth or even millions more job losses, increasing fears of a 1930s-style downturn.
The Saint Louis Fed compiles a coincident employment index, which collates data from Homebase, a scheduling and time-tracking service for small businesses and which has largely matched the official data produced by the US labor department. The index had consistently improved since reaching a low in April, but by the end of June started moving sideways, then ever so slightly in the wrong direction again.
Sonders worries that while the share of temporary job losses has been decreasing across the economy, the share of permanent job losses has been increasing. "[That trend] is not good, obviously," she warns.
In Florida, the new spike in coronavirus cases has forced Ferenc — whose flagship restaurant is in downtown Tampa — to put a hold on her own rehiring plans. She has also had to consider reductions in salary and working hours for her mid-level employees, who she had tried to spare from the worst of the crisis.
"You look at different ways that you can start to reduce things, hopefully keeping people employed but maybe slightly less employed," she says.
John Newstreet, who leads the local Chamber of Commerce in Osceola county near Orlando, worries that more lay-offs could become permanent in his tourism-dependent area but is optimistic that "the worst days are behind us" as long as another lockdown can be avoided. "We should be responsible and cautious as we go forward," he says. "Now we just need to work together. Be courteous to each other and get through this."
Will Washington pick up the bill?
A stunted rebound will dash US president Donald Trump's hopes of heading into the November re-election contest against Joe Biden armed with a V-shaped recovery, as he had banked on from the start of the coronavirus crisis.
But the jitters over the economic hit from a new wave of cases — running at more than 400,000 a week — could be compounded by Washington's inability to strike a deal over additional fiscal stimulus to help support the recovery.
One of the main reasons why consumer spending and a good chunk of jobs bounced back so fast in the US was that they were driven by the $3tn in stimulus approved in the early months of the crisis, including direct government payments to households, a sharp expansion in jobless benefits, and forgivable loans to small businesses.
But the impact of those measures — intended as a temporary if expensive bridge to better times — is fading just as the outlook is darkening. While Democrats have called for an additional $3tn in new spending on unemployment assistance, direct payments to households, and funds for cash-strapped states and local governments, Republicans have been reluctant to support the measures, leading to a stand-off that will come to a head in the coming days on Capitol Hill.
One of the biggest sticking points is the fate of US$600 per week in emergency jobless benefits introduced during the pandemic, which expires later this month and which Republicans and the White House have wanted to cut because they believe it is excessively generous and disincentives work.
Even if a compromise is reached, it is likely to involve a significant reduction in support compared with the previous round, which may reduce discretionary income for many families and even jeopardise their rent or mortgage payments. If no money is approved for cash-strapped states and municipalities, many will be forced to further shrink their workforces. Many economists are concerned that any agreement coming out of Washington could be underwhelming and insufficient.
"We think it will fall short in terms of how much support the economy will need, especially as we're seeing the health situation deteriorating," says Oxford Economics' Boussour. "There is a chance that income will be constrained going forward."
In the Tampa region, Ferenc, who secured a small business loan from the last round of stimulus, says there is a case to be made for additional help for entrepreneurs in the next round of negotiations, especially to avoid more of them simply failing — which is another concern many economists have as they look at the coming months.
"If we are going to see downturns due to spikes, then yes, I think businesses would benefit," she says. But her main hope is that her state can avoid another full-blown shutdown — even if that means restaurants like hers will have to accept further cuts to capacity.
"If we start and then we stop and then we start and then we stop again, I think that's a much more difficult thing to do," she says, "in life or in business."
Written by: James Politi
© Financial Times