May 28, 2020 - Economy & Business

The economy's honeymoon phase of its coronavirus recovery

Illustration of a man stuck in a maze of question and exclamation marks

Illustration: Aïda Amer/Axios

Now that governors across the country have begun to pull back "stay at home" orders, businesses are facing a new set of challenges — consumers skittish about returning to normal activities and employees who aren't yet ready to come back to work.

What's happening: The Fed's latest Beige Book, a survey of business leaders around the U.S., was released Wednesday and revealed that for firms in each of the Fed's 12 districts, "the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery."

The big picture: While businesses are reopening, it's not as simple as flipping a switch, Scott Clemons, chief investment strategist at Brown Brothers Harriman, tells Axios.

  • "This is a process, not an event, and this is essentially a crisis of confidence so even when things reopen it's not certain that everyone will fully re-engage economically even if the governor says so."

The state of play: The unemployment rate rose to 14.7%, its highest level on record, in April and many economists believe the real rate is well above 20%.

  • But bringing the millions of workers who are currently out of a job back into the labor force looks like it's going to be a more significant challenge than many expected.

What they said: "Contacts cited challenges in bringing employees back to work, including workers’ health concerns, limited access to child care, and generous unemployment insurance benefits," the Beige Book noted.

  • While the Paycheck Protection Program was cited as helping reduce labor turnover for some firms, others cited "challenges in meeting the PPP loan forgiveness requirement."

Between the lines: Many of the newly unemployed who are ready to get back to work won't have the opportunity.

  • More than half of small and medium-sized businesses in a recent study by Facebook in collaboration with the World Bank said they will not rehire the same workers they had before the crisis. 
  • And about a third of businesses that closed do not expect to reopen.

Where it stands: We are likely in the honeymoon stage of the economy's recovery, according to Harvard professor and former chair of the Council of Economic Advisers Jason Furman.

  • "Problem is, that's the low-hanging fruit of growth where you turn the lights back on [and] call some of the furloughed workers back," he told CNBC.
  • "There’s a lot more people that aren’t coming back to their jobs, businesses that are not going to be revived, and so once you get past that first phase, I think you’re in for a long and painful slog.”

Go deeper: The geographic inequity of small business coronavirus aid

Go deeper