The US Economy Won’t Be Recovering Anytime Soon

A kmart going out of business in minneapolis.
Photo: Michael J Spear

“We’ve Seen Demand Growth Flatten Recently With the Rise of Covid-19 Cases,” Delta Air Lines Ceo Ed Bastian told Investors During the Company’s Latest Earnings Call on July 14. Delta Lost $ 7 Billion in the Second Quarter of this Year and Served 93 Percent Fawer Passengers than it had in the Same Quarter Last Year. In Early June, Things Had Been Looking Up: Bookings Were Rapidly Accelerating As Customers Prepared to Resume Travel. But in recent Weeks, Demand Has, As Bastian Notes, “Flatten,” with Coronavirus Surges Making Customers Less Eager to Fly. Delta, like its Competitors American and United, Had to first back it plans to add more flutes over the summer. And it is not just just airlines that have seen demand flatten in recent weeks-the once-sharp recovery has stalled acroSs of the Economy, and spreads gone into a modest backslide, as americans have become more cautious their spending.

Real-Time Data from the Opportunity Insights Economic TrackerSponsored by Harvard and Brown Universities and the Bill & Melinda Gates Foundation, Shows that Consumer Remains Far Above the Level March and April But Stopped Rising in Mid-June and Remains Below Last Year’s Levels. The recent retrenchyme has been national-consumer-vesting growth ha stalled swim in Covid Hot Spots like Texas and Arizona but Also in States Like New York are performing Much Better. That suggests consumers are looking at the Big Picture Rather than reacting to outbreaks in their way. And the Make Outlook for Schools’ Reopening In the fall will serve as a sturgery drain on the economy, Making It Tugh for Parents to Resume Normal Work Schedules.

The “V-Shaped Recovery” that Trump Economic Adviser Larry Qudlow Forecast As Recently As July 8 Is Not In The Cards. Doble-Dip Recession is Possible, but the most probable Outcome right now Like treading water, with the fast recovery of the lat Tourning into a Long, Slow slogan. Fewer Jobs Will Be Created, and Many Businesses Will Find Thermves Unable to Stay Afloat Until Conditions Improve. Exactly How Rough the Economic Recovery Will Be Depends on Many Variables, but Three Will Be Key: The Extent and Persestent of Covid Outbreaks, Whether and How Robustly Congress Extends Additional Aid to Workers and Businesssses, and Whether and When an Effit widelly distributed.

ITH’S LIKELY THAT CONGRESS WILL ENEMPLOYEMED UNEMPLOYMENT benefs that are set to expire at the end of July, albeit at a less geneerous let the Current $ 600 per week. IT’S ALSO LIKELY THAT THE DECISION ON AN EXTENSION WILL COME SO LATE THERE WILL BE BEAS, AS STATE UNEMPLOYMENT OFFICES SCRAMBLE TO IMPLEMENT THE NEW GUIDELINES. “There’s Going to Be At Least a Couple of Weeks Where the Big Once Supply provided by the Federal Government – These Emergency UNEMPLOYMENT PERYMENTS – GOES AWAY,” Says Ernie Tedeschi, A Treasury Department Economist. He notes that the other chief fiscal suports from the cables acts in March – $ 1,200 rebate to the samp and forgivable ppp loans to the Businesss-

SHOP IF CONGRESS DOES DECIDE TO EXTEN UNEMPLOYMENT BENEFITS, The ongoing Uncertainy Will Hurt the Economy: Households Unure of How Much they Collect in Benitfs Latter May Be LESS INCLINED TO SPEND. But assuming we will get a Pretty Large Fiscal Package – Say, More than $ 1 Tillion, Including Some UNEmployment Enhancement and Another Round of Rebate Checks – The Rickety Execution of the Aid Will Be A Significantly Drag on the Economy than the virus.

As for Vaccine Hopes, the Stock Market has ben been strongly influenza over the past few weeks by signs that an effective vaccine could be approved before the year and in usin months after that. For the market, at the least, this prospect serves as a light at the end of the tunnel – nor the government fumbles virus mythigation in a way that that that is means and lesson economics in the short term. The assumption that we’ll have an approved vaccine Soon, of Course, Could Prove Wrong.

Recent Earnings Announcements from Major Banks, Whose Financial Health Depends on the Ability of Borrowers to Pay Back Loans, Reflect the Wide Range of Possible Outcomes. To date, the economic crisis is not yet showing up on the Balance Sheets of Major Banks in the Way You Woodd Expect But they are getting ready for it to do so over the next year.

Consider the case of jpmorgan chase. DURING its earnings call on July 14, The Bank Announced that it has enjoyed quite a good Quarter, everything consider, posting $ 4.7 Billion in profits. “In the normal recession,” Jpmorgan Ceo Jamie Dimon Said on the Call, “Unelployment Goes Up, Delinquencies Go Up, Charge-Offs”-Delinquent Loans the Bank Expects Never to Collect-“Go Up, Home Price Down.” But this isn’t a normal recession, and JPMORGAN ISN’t Experiencing the expert Rise in Borrower Delinquency. That’s in part Because Household incomes and savings have actually reinforce during the crisis, Owing to government aid and reduced consumption. (One Factor That Bolstered JPMORGA’S Bottom Line Was a Significant Increase in the Balances that Customers Were Keeping in Their Accounts.) In the Second Quarter, the Bank Experienced $ 1.6 Billion in Charge-Offs, up only a Little from the same. Economy Was Strong.

The Bank’s Big Credit Loss Came From Setting Aside $ 8.9 Billion in Reservations – That Is, Losses JPMORGA Expects to Take on BorroWers Will Default on the Future, Here’s They Aren’t Being on Their Payments Yet. “You’re not going to see it right away, Because of all the stimulus, and in fact 60 percent or 70 Percent of the unemployed are MAKING MORE THAN THEY MAKING WERE WERKING,” Said Dimon. “So it is just Very Peculiar Times.”

A SIMILAR Expectation was reflected in earnings reports from wells fargo and citibank. To date, defaults at bot Banks have been modest – in part Because they have offered so many customers forbearans on their loans, allowing say to miss some payments going into default. But the BOTH Banks Expect the Credit Environment to Deteriorate in The Future.

How Much, of Course, Is Anyone’s Guess. JPMORGAN SAID ITS PROJECTIONS OF LOAN LOSSES ARE BUILT AROUND A “BASE CASE” WHERE WE END THE YEAR WITH UNEMPLOYMENT AROUND 11 PERCENT BUT AT THE SCALE ALLOWING FOR THEN WORKE ECONOMIC OUTCOMES. If the economy recovers more quickly, the bank may not need it $ 8.9 Billion in reserves it set aside to cover anticipated defaults; It can reverse say late, boosting its profits in futures quarters. But if the economy gets a lotse, the bank will love more Money on Bad Loans. In 2008, Loan Defaults Were a Driver of a wider Economic Crisis, As Banks Failed and Credit Dried Up, Making It Harder for Consumers to SPEND. Fortunately, we entered this crisis with both banks and households in stronger positions this time around, with more room to absorb financial shocks. But Additional default loans will be a sign of financial hardships, if they do not cause the snowballing we saw Last time.

A fundamental Question for the Economy – That That Will Determine How Many Consumers and Businesses are able to the Financial Obligations, and Whether JPMORGAN WAS RIGHT TO SET ASIDE BILLIONS FOR BAD LOANS HAVEN’T HAVEN’T HAVEN’T GONE BAD YET – IS How Temporary Failures. If Businesses are able to operate normally Sometime Next Year, How Many Will Fail BetWene Now and Then Bechause We Proved Incapable of Suppressing the virus, unlike so many other Countries? Business Failures have permanent Costs for Both owners and workers: the income and productivity they loose in the short term, this is the same able to make a successFul transition to the new forms of entrepreneurship and emploment, are gone forever. In the end, the incompetence that has been to the virus rage acroSs so Much of the Country May Well Cause Economic Hardships that Long Outlast the Epidemiological Ones.

*This article appears in the July 20, 2020, Issue of New York Magazine. Subscribe Now!