U.S. Economy Faces Second-Wave Slump As Coronavirus Infections Surge

Millions of Americans are sliding into financial distress because of the Covid-19 pandemic’s mismanagement—and the prolonged recession that now appears likely.

Now that infections and deaths are spiking again, financial markets have turned nervous as investors brace for another round of economic pain. U.S. stocks just turned in their worst week since March, when the pandemic first began.

Anxiety is especially high because the lack of a second fiscal stimulus deal from Congress increases the prospect that consumption will suffer, with millions falling below the poverty line as government relief for households and businesses falters.

“The U.S. economy remains deeply depressed, and a reentry into outright recession in coming months is highly possible,” wrote Josh Bivens of the Economic Policy Institute and others in a new blog.

“U.S. families are suffering: 225,000 lives have been lost, 30 million workers have lost either jobs or significant hours of work, nearly every state is facing sharp drops in revenue that will threaten even more cuts to essential social programs and jobs.”

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Scott Minerd, CIO of Guggenheim investments, says recent signs of recovery mask the rising possibility of another major bump on the road for growth just as the economy is at its most brittle.

“Without fiscal stimulus, personal income will stagnate, job gains will slow, consumers will pull back, and more small and medium-sized businesses will fail,” he writes in a blog.

“The economic fallout from lack of fiscal actions increases the likelihood of a negative fourth quarter gross domestic product print while Main Street remains in depression.”

The Federal Reserve this week again eased the terms of its Main Street Lending Facility, which has thus far seen minimal take-up and has been criticized for being overly punitive and restrictive.

The Fed meets this week to set monetary policy and will likely debate what else it can do given the vaccum of Congressional inaction.

The general consensus is the Fed can remain supportive but the main thrust of policy needs to come from a legislative branch that remains all but frozen by the political calendar.

While few expect the coming slowdown to be as severe as the blow to activity seen during March and April, the economy is also in a much more fragile place this time around.

A second wave economic slump is almost sure to follow the second wave of Covid-19.

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