Jun 23, 2020 - Economy

The coronavirus recovery may be W-shaped

Illustration of a W-shaped economic recovery model.

Illustration: Sarah Grillo/Axios

U.S. economic data has shown improvement in recent reports, starting with May's nonfarm payrolls report and including new home sales, various Fed manufacturing indexes and retail sales, all showing better-than-expected rebounds.

Why it matters: The momentum could reverse quickly if the coronavirus pandemic picks back up and policymakers drag their feet on renewing stimulus measures, experts say.

Driving the news: Top U.S. health officials including Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, will tell House lawmakers today that "COVID-19 activity will likely continue for some time” as the U.S. approaches the flu season, according to prepared testimony.

  • "If there is COVID-19 and flu activity at the same time, this could place a tremendous burden on the health care system."

Most economic prognosticators, like those at the Fed and the CBO, have written off the likelihood of a quick, V-shaped recovery for the economy, and are generally expecting an elongated "Nike swoosh" style return. But even that delayed rebound is predicated on keeping COVID-19 infections in check.

  • Rather than a V or a U or even a swoosh, the virus' resurgence could mean the U.S. is looking at a W — meaning economic growth begins to rebound before falling back into recession.

What they're saying: "The shape of recovery will be determined by whether we get ongoing fiscal stimulus and whether we are able to tamp down on the virus," Kristina Hooper, chief global market strategist at Invesco, said Monday during the Bloomberg Invest Global conference.

  • "The ability to control the resurgence of the virus … that requires extensive contact tracing infrastructure."
  • "If we’re not able to effectively do that we could see the reimposition of lockdowns and we could also see an erosion of consumer confidence."

Where it stands: Nearly half of U.S. states are seeing daily increases in COVID-19 infections, led by Florida, Arizona and Texas, data shows.

Between the lines: While fund managers have worried openly about a second wave of infections stunting the economic recovery, Fauci recently pointed out that such talk is premature.

  • "When you have 20,000-plus infections per day, how can you talk about a second wave?" he recently told reporters.
  • "We're in the first wave. Let's get out of the first wave before you have a second wave."

Watch this space: In addition to flu season, coronavirus infections are picking up right as relief measures like eviction moratoriums, increased unemployment benefits and the government's Paycheck Protection Program are set to expire.

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