The V-Shaped Recovery Won't Happen

There has been a perception among optimistic economists that after battered second-quarter GDP figures growth will begin to blossom at the end of the third quarter into next year. The unemployment rate will recover rapidly and the jobless rate will drop back below 10%. The rapid spread of COVID-19, particularly in the U.S. has started to make those forecasts nearly impossible.

A V-shaped recovered depends largely on a “reopening” of the economy. That is less and less likely to happen. Large states, in particular Texas, California, and Florida may begin lockdowns similar to the one in New York State which began three months ago. Businesses will be forced to close either by law or a lack of customers.

Another blow to growth will be the end of the Pandemic Unemployment Compensation which pays an extra $600 a week to a huge number of Americans who are already unemployed. Another program that contributes capital to keep people in their jobs was the Paycheck Protection Program. It gave employers loans, most of which will be forgiven, so they would not have to lay off members of their workforces. Most of the effects of that program will start to disappear soon as well.

Even if the two federal programs are extended, they cannot offset a shuttering of huge portions of the American economy. The rapid acceleration of the spread of COVID-19 has driven confirmed cases in the U.S. close to 3 million. Deaths are at almost 132,000. Both numbers are almost certainly too low. The figure for confirmed cases may be as high as 20 million, many of those may never be diagnosed because they have no symptoms. However, they can still spread the disease.

Some models for the spread of COVID-19 put death in the U.S. above 200,000 by early October. The current massive spread could push that number higher. Deaths and cases overseas could curtail export activity.

Some businesses which made it through the first stage of the spread of COVID-19 will not make it through a long shutdown triggered the growth of a large number of cases over the next months. This is particularly true of services businesses which include restaurants, and in some cases hotels and airlines–among the largest employers in the economy. Even companies with strong balance sheets may have to cut workers to preserve cash.

Look for a rise in unemployment as early as July, and difficult GDP figures for the third and perhaps fourth quarters. Those will look nothing like a V.