California Job Recovery Slowed By June’s Resurgence in New Cases…. But Latest Trends Show Improvement
As dramatically bad as the U.S. economy’s 2nd quarter numbers were, the recent bounce back in activity, from home sales to consumer spending to payroll employment, has buoyed a leading forecast’s call for a relatively rapid recovery from the extraordinary COVID-19 recession.
Beacon Economics’ latest outlook for the U.S. and California diverges significantly from most forecasts as the firm continues to predict a strong recovery during the latter part of 2020 – with near full recovery in 2021. In contrast, for example, the U.S. Congressional Budget Office is suggesting it will take close to a decade for the nation to reach full recovery.
On its current trajectory, U.S. unemployment will fall below 7% by the end of this year, according to the new forecast, which bases its findings not only on the recent growth of key indicators, but on the economy’s condition at the outset of the pandemic.
“The United States economy entered this crisis from a place of real strength and balance – the collapse in consumer spending, for example, occurred because people were prevented from spending, not because they didn’t have the money to spend,” said Christopher Thornberg, Founding Partner of Beacon Economics and one of the forecast authors. “There is simply no reason to think that the shocks to the economy, as massive as they were, will linger and have more than a transitory effect once activity fully resumes.”
The outlook points out that, during the pandemic, U.S. consumer savings have shot up to almost $1.2 trillion, four times what they were in December 2019. “This $900 billion in excess savings will undoubtedly be spent once life returns to normal… it’s the dry powder that will fuel a rapid recovery,” said Thornberg. Relatedly, the forecast notes that overall personal wealth in the U.S. has actually increased over the course of the current recession.
Despite the optimism, the new outlook is based on the assumption that the virus will be brought under control and health-mandated closures and restrictions will continue to ease. Economic recovery is highly contingent on containing the spread of the disease and there continues to be uncertainty surrounding the nation’s ability to do that effectively and quickly, according to the outlook. Additionally, while they may not drag down the macroeconomic numbers, there are clearly individuals and sectors suffering, and the new forecast is critical of the blunt, disproportional, and poorly thought-out way in which the immense Federal stimulus has been distributed, with aid not reaching those who need it and funds going to many who don’t.
In California, the recovery that has been underway since April slowed following the resurgence in new COVID-19 cases in the state in June. More recently, however, the number of new cases has started to decline. “While we are far from smooth sailing, cases and hospitalizations have been dropping in California as of late August, a critical trend for the state’s economic recovery,” said Taner Osman, Research Manager at Beacon Economics and one of the forecast authors. “The hope, of course, is that containment continues and that job gains accelerate later in the year.”
At this point, given that mandated restrictions remain in place, Osman estimates that August’s numbers, when available, will show strong but not ‘blow out” employment gains in the state. California has launched a new four-tiered reopening plan, with 38 of the state’s 58 counties currently landing in the most restrictive tier. Counties are able to move to less restrictive tiers, which allow more businesses to open and more activities to resume, as their daily virus case numbers and positivity rates decrease.