Is the United States economy in recovery?

Is the United States economy in recovery? Or is it in terminal decline? Has Covid-19 shattered it, or simply caused it to stutter?

Looking at the Markets over the last months it is impossible to tell whether we are in for a Bull or Bear Market. One minute it seems to be going one way and then, well, you know, it flips the other.

Just this week, the third largest airline in the world, United Airlines announced redundancies for 95,000 staff. That’s a third of its work force. Trading since 1818, Brooks Brothers filed for bankruptcy. And Bed Bath and Beyond, the American chain of domestic merchandise retail stores, operating across the United States, Canada, and Mexico, is set to close 200 stores.

Doesn’t sound like a recovery to me.

The much hoped for “V-shaped” comeback we have all been hoping for since we all learned how to spell coronavirus looks some way in the distance.

Instead, the pandemic’s shock to the economy looks like being an old fashioned economic depression. And how temporary is anyone’s guess whether you are on Wall Street, Main Street America, or even the White House.

Back in March, US states and cities closed business down, along with most other aspects of civic life. The idea was a simple one. Let’s flatten that curve of infection, smother it with inactivity to buy time for health services and subsequently save lives.

At the same time, the White House predicted with confidence “that by July the country’s [economy will be] really rocking again.” And the amount of fiscal stimulus since those early days was predicated on a short contraction followed by a full scale, full steam ahead economic recovery.

Sounded good.

The problems started when some state governors reopened economies before the virus was really under control. Now we watch as states such as Florida, California, Texas and Arizona are setting daily records for fresh coronavirus cases. As a result, more than 70 per cent of the US has either paused or reversed the much-desired reopening plans, according to Goldman Sachs.

And then there was the news we have all dreaded. Not so much the economic contraction that was expected but that jobs are disappearing. After two surprisingly strong months for job figures there is a different, negative trend emerging. Not least that for 16 consecutive weeks the first-time claims for unemployment benefits have exceeded 1 million – this is a trend more in keeping when depressions and recessions start to grip.

In addition, small businesses across the country have run out of funds. Larger companies are starting to thin payrolls expecting a downturn that could well be longer-than-expected.

The March unemployment rate never reached 20 per cent feared by economists with long memories back to the Depression. Instead, it peaked at 14.7 per cent. But, as time moves on those initial temporary layoffs in response to a health crisis have started to look more permanent, affecting millions as a result.

This turmoil in the labor market has all sorts of ramifications and not just for the economy. It is the most vital indicator for many ordinary Americans about how the economy is doing, and how it is doing for their lives. Looking at these current figures, with an election looming this November, this is bad news for President Trump.

Looking at things in the round, the Markets, the labor market, the medical situation around the virus, the fairest assessment seems that things have simply stalled.

Not quite as bad as some people fear, but not so good as some people hoped for. And the tension is killing. Killing that one thing that economic recovery needs, namely, optimism. That feeling that things are going in the right direction, and regardless of the odd bump along the way they should continue to do so. Currently, that optimism is in short supply.

Last Friday, at the White House, President Trump insisted that things were on track, however. He told the press, and anyone listening and particularly anyone voting this November, that: “I created the greatest economy we’ve ever had. And now we’re creating it again.”

Thereafter he left for the perennial swing state Florida.

Days earlier, Trump had talked about launching “the fastest economic comeback in history.” There was some basis for what he said based on the early economic stats. The US economy did regain a total of 7.5 million jobs in May and June, faster than anyone and particularly many economists could have anticipated. What wasn’t so clear was that that number was merely one third of jobs lost since the pandemic struck. We’d need a recovery powering ahead for the rest of the year just to get back to where we were.

Yet the opposite appears to be happening. Layoffs are spreading, and more worrying still into sectors and to companies that provide services requiring direct human contact. The longer the virus hangs around the more it will kill off these sectors and that means job losses.

This month motorcycle manufacturers Harley-Davidson announced it was eliminating 700 jobs. But here’s the thing, the statement went on to say that this was part of a restructuring plan. And tellingly, that this plan was unrelated to the pandemic. Closer examination revealed that as early as in April, Harley-Davidson said: “The crisis has provided an opportunity to re-evaluate every aspect of our business and strategic plan. We have determined that we need to make significant changes to the company.”

There is something else at work in all this. Disasters, as all politicians know, are a good time to bury other bad news. Well this health “disaster” is a good time to tell people the bad news, namely, that they are fired. Blame it on the pandemic, even though the real reason is more to do with the current business plan and the fact that it is not working, and so now neither are you!

The pre-pandemic jobs environment looks historic; in contrast, the virus is reshaping the US economy. So expect fewer jobs in airlines, hotels, restaurants and traditional retail and more in e-commerce and technology industries.

How that all happens – and crucially when – is the thing to watch for now, not the current static or contradictory economic indictors.