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WASHINGTON (AP) – In the grip of the accelerating viral epidemic, the U.S. economy is under pressure from persistent layoffs, shrinking incomes and nervous consumers, whose spending is needed to drive a recovery after the pandemic.
A wave of data released on Wednesday suggested the spread of the virus is intensifying threats to an economy still struggling to recover from the deep recession that struck in early spring.
The number of Americans seeking unemployment help rose last week for a second week in a row to 778,000, proof that many employers are still cutting jobs more than eight months after the virus. Before the pandemic, weekly jobless claims typically only amounted to around 225,000 people. Layoffs are still historically high, with many businesses unable to fully reopen and some, especially restaurants and bars, face increased restrictions.
Consumers increased their spending last month by just 0.5%, the smallest increase since the outbreak of the pandemic. The lukewarm figure suggested that on the eve of the crucial holiday shopping season, Americans remain concerned about the spread of the virus and that Congress is failing to enact additional aid for individuals, businesses, cities and towns. States in difficulty. At the same time, the government said on Wednesday that incomes, which fuel consumer spending, fell 0.7% in October.
The surge in virus cases is increasing pressure on businesses and individuals, with growing fears that the economy could experience a “double dip” recession as states and cities reimpose restrictions on businesses. The economy, as measured by gross domestic product, is expected to post a modest gain this quarter before weakening – and possibly contracting – early next year. Mark Zandi, chief economist at Moody’s Analytics, forecasts annual GDP growth of about 2% in the October-December quarter, with the possibility of GDP turning negative in the first quarter of 2021.
Economists at JPMorgan Chase lowered their forecast for the first quarter to a negative annual GDP rate of 1%.
“This winter will be dark,” they wrote in a research note.
Zandi warned that until Congress agrees on a new stimulus package to replace a now expired multibillion-dollar aid package enacted in the spring, the threat to the economy will increase.
“The economy is going to be very uncomfortable by the date of the next fiscal bailout,” Zandi said. “If lawmakers fail to pull themselves together, it will be very difficult for the economy to avoid falling back into a recession.”
Some corners of the economy are still showing strength, or at least resilience. Manufacturing is one of them. The government said on Wednesday that durable goods orders rose 1.3% in October, a sign that purchases of goods remain strong even as the much larger service sector of the economy – restaurants, hotels and airlines. at gyms, hairdressers and entertainment venues – is still struggling. But economists warn factories also remain at risk of outbreaks of coronavirus cases, which could reduce demand in the coming months.
And new home sales were flat in October, the latest sign that extremely low mortgage rates and scarcity of properties for sale have boosted demand and made the housing market a rare economic bright spot.
But at the heart of the economy are the labor market and consumer spending, which remain particularly vulnerable to the surge in virus cases. Most economists believe that the distribution of an effective vaccine would likely revitalize growth next year. Still, they warn that any lasting recovery will also depend on whether Congress can soon agree on a major aid package to get the economy through what could be a gloomy winter.
“With infections continuing to increase at a high rate and restrictions on business operations widening, layoffs are likely to resume in the next few weeks,” said Rubeela Farooqi, Chief Economist of the United States at High Frequency Economics .
The government said the total number of people who continue to receive traditional state unemployment benefits fell to 6.1 million from 6.4 million the previous week. This figure has been declining for months. This shows that more Americans are finding jobs and are no longer receiving unemployment assistance. But it also indicates that many unemployed people have exhausted their state unemployment assistance – which usually expires after six months.
More and more Americans are seeing benefits from programs that have been put in place to alleviate the economic pain of the pandemic. For the week of November 7, the number of people receiving benefits under the Pandemic Unemployment Assistance Program – which provides coverage to on-demand workers and others who are not eligible for traditional aid – increased from 466 thousand to 9.1 million.
And the number of people receiving assistance under the Pandemic Unemployment Compensation Program – which offers 13 weeks of federal benefits to those who have exhausted state unemployment assistance – has increased from 132,000 to 4, 5000000.
Data firm Womply says 21% of small businesses were shut down earlier this month, reflecting a steady increase from June’s 16% rate. Consumer spending by local businesses is down 27% this month from a year ago, marking a deterioration from a 20% year-over-year decline in October, found Womply.
At the heart of the problem is an untamed virus: the number of confirmed infections in the United States has climbed to more than 170,000 per day, from less than 35,000 in early September. The arrival of cold weather in a large part of the country could further aggravate the health crisis.
Meanwhile, another economic threat looms: The impending expiration of two additional federal unemployment programs on Boxing Day could end benefits for 9.1 million unemployed people. Congress failed for months to agree on new stimulus aid for jobless people and struggling businesses after a multibillion dollar bailout expired. promulgated in March.
The expiry of benefits will make it more difficult for the unemployed to pay their rent, feed themselves or pay their utility bills. Most economists agree that as the unemployed tend to spend their benefits quickly, this aid is effective in stimulating the economy.
When the viral epidemic erupted in early spring, employers cut 22 million jobs in March and April, pushing the unemployment rate to 14.7%, the highest rate since the Great Depression. Since then, the economy has regained more than 12 million jobs. Yet the country still has around 10 million fewer jobs than before the outbreak of the pandemic.
All of this has left many Americans worried and unsure. The Conference Board, a research group on business, reported on Tuesday that consumer confidence weakened in November, dragged down by lower expectations for the next six months.
And the University of Michigan consumer surveys reported on Wednesday that sentiment has eased slightly this month and has remained well below what it was before the pandemic hit. With the resurgence of the virus depressing the outlook for consumers, the sentiment index fell to its lowest point since August.
“Darker consumer expectations will weigh on spending as the holidays approach,” warned Kathy Bostjancic, chief US financial economist at Oxford Economics.
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AP Business Writer Ken Sweet contributed to this report from Charlotte, North Carolina.
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