72% Surge In New Covid Cases Is Slowing Economic Recovery, BoA Says

Topline

After hitting a promising low in the week ending September 13, the weekly number of new coronavirus cases in the United States has surged an astonishing 72% in one month, and indicators of economic activity are already raising concerns that this could seriously hinder the economic recovery, Bank of America said in a Wednesday research note. 

Key Facts

With jobless claims continuing to run at recession levels, the labor market is among the most concerning indicators, Bank of America noted, and previously positive signals are now softening: Job postings on the website Indeed barely budged last week, while shift work for hourly employees fell 1%.

Meanwhile, data from scheduling firm Homebase suggests that small businesses are severely more depressed than earlier in the year, with employment still down over 20%.

Despite increases to consumer confidence and retail sales, the New York Fed Weekly Economic Index, which tracks 10 indicators covering consumer behavior, the labor market and production, had its second-worst decline since its recovery started in mid-April, falling 4% year over year in the week ending October 16, from a decline of 3.3% the week prior.

Now, even consumer indicators are starting to lag, with the number of in-restaurant visits still down close to 50% year over year across the globe, and falling since last week, according to OpenTable data cited by Bank of America.

Mobility–meaning how much people are moving around–also declined last week, now virtually flat from mid-June and down about 40% year over year, according to data collected by the Federal Reserve. 

There’s one bright spot, on the housing front: Monthly data continues to signal that demand for housing remains robust, as homebuilder confidence rose to new record highs in October and September, Bank of America said Wednesday.

Key Background

Federal Reserve Governor Lael Brainard said Wednesday morning that the economic recovery “remains highly uncertain and highly uneven–with certain sectors and groups experiencing substantial hardship,” adding that these disparities risk holding back the recovery. Newly surging coronavirus cases further stain the economic outlook, notes Bank of America, and recent national data “masks over an even bleaker picture at the state level,” the firm said Wednesday. There are currently 32 states that are seeing weekly growth in cases exceeding weekly growth in tests–meaning the extent of an ongoing wave could be downplayed by available data. Additionally, the median test-positive rate across the 50 states and DC has increased from 5.5% two weeks ago to 6.3%. If the virus continues along its current trajectory, it’s likely economic activity won’t recover until cases improve, as more people adopt voluntary social distancing or governments adopt policies to control the spread, Bank of America concludes.

Crucial Quote 

“With the economic data pointing to a moderation in activity, we remain very concerned that the recent surge in new virus cases will hinder the economic recovery,” a team of BoA research analysts said in their Wednesday report. “Moreover, we fear that states that have experienced relatively stronger economic recoveries are those currently experiencing the most severe virus outbreak, and this could lead to an increase in voluntary social distancing in these states or government mandated measures to restrict activity.”

Tangent

53% of Americans think the economic situation is going to get worse before it gets better, says James Knightley, the chief international economist of Dutch bank ING, which polled 14,000 European and American respondents about their economic outlook amid the pandemic and released the findings on Tuesday. The survey found Europeans were generally less optimistic, with 65% of Britains, 78% of Spaniards, 68% of Italians and 63% of French people saying their domestic economies would get worse before getting better.

Further Reading

House Speaker Pelosi Says ‘There Will Be’ A Stimulus Deal, Either Before Or After The Election, As Democrats Block Another GOP Skinny Bill (Forbes)

Stocks Fail To Nab Gains, Dow Flat, As Fed Governor Says Targeted Stimulus ‘Needed’ For ‘Inclusive’ Economic Recovery (Forbes)

A Fed official who could be Biden’s Treasury secretary says Congress needs to pass stimulus to save the recovery (CNBC)

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