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Trump’s dream of a V-shaped rebound is slowly slipping away

Pending home sales rebounded strongly in May and June amid falling mortgage rates. Existing home sales also rose sharply in June. Rising unemployment claims began to ease in March when states began to reopen and the unemployment rate fell from a high of 14.7 percent in April. But last week’s surge suggested the new wave of virus cases, and a return to tighter lockdown orders in some states has affected the return of the labor market.

Economists say that much needs to be done to play out these most rosy scenarios, including rapid progression of further improved unemployment benefits, rapid progress in vaccine development and the survival of thousands of companies that are unlikely to come through further lockdowns.

Many are convinced that it will all come together.

“To me it seems like a pipe dream. I can’t easily imagine a V-shaped recovery, ”said Beth Ann Bovino, chief economist of the US at Standard & Poor’s Ratings Services. Aside from the fact that Covid-19 doesn’t seem to be under control, this is a $ 22 trillion economy. You can’t turn it off and on like a light bulb. ‘

The economy is recovering, but more slowly – The most likely scenario outlined by economists is that there will be a significant bounce-back in the third quarter, given the depth of the decline in the second quarter. But the persistence of the virus, Americans’ reluctance to go back to their offices or go out to shop and eat and spend money, keeps an eye on the magnitude of the recovery.

In this scenario, the pre-election unemployment rate could stagnate or even rise again, as new lockdowns lead to more companies firing their workers and widespread uncertainty about the future suppressing business investment.

Any significant decline in extended unemployment benefits, which officially expire on July 31 but are already depleted for many, can also cause a major dent in spending and lead to an increase in defaults on mortgages, credit cards, cars and other loans.

“We still have a large portion of the population who still depend on these benefits,” said Moya. And it is not easy to be optimistic about large parts of the labor market. I once thought we would see the unemployment rate drop to about 8 percent this year, but now it seems likely to be higher. ‘

Moya added that the good news about vaccines is not likely to appear until October or November with the completion of the first Phase III trials. And that means Americans are likely to hesitate to do many normal economic activities. “The home working economy will remain resilient, but you will not see a widespread return to normal.”

Evidence of a slowing recovery rate is also mounting. Consumer confidence fell to 92.6 in July from 98.3, according to the Conference Board, amid mounting fears of rising virus cases. The index peaked at nearly 132 years in February at 132.6, before the virus hit the US. Retail sales rose in July, but could disappear as virus cases increase. “Further virus-driven decline in consumer activity is likely,” Goldman Sachs analysts wrote in a recent report. “We estimate that if all states that have currently tightened policies were to impose stricter measures similar to those just imposed in California, this would bring US consumption down to June levels.”

The economy is falling off a cliff again – In the doomsday scenario, Covid-19 would get out of hand again without enough good news from phase III vaccine trials coming this fall. It would also mean that Congress fails to expand unemployment benefits and pump sufficient money flows into the economy through direct payments and increased aid to individuals, small businesses and national and local governments. In essence, this would mean a return to budget cuts at a time when over 30 million are unemployed and the virus is not controlled.

In this scenario, the unemployment rate would start to rise again in August and September and in the fourth quarter GDP profit would be much smaller and perhaps even shrink again.

“Several things can dive into this already slow recovery, including poor health outcomes and a premature return to budget cuts,” Bovino said. Her team’s worst-case scenario where the virus is getting out of hand would show a GDP decline of 8.7 percent for 2020 and 14.6 in total from the peak of the economic cycle to the trough.

A rising unemployment rate, widespread new lockdowns and an increase in the deaths from Covid-19 can make Trump’s reelection prospects nearly impossible. The president once had a strong lead over the economy over Biden. But show recent polls that lead has essentially evaporated. It is likely to become negative when the economy goes down again. And while this isn’t the most likely scenario, it can certainly happen.

“The worst case is that we are reversing all job gains and any progress in terms of economic activity,” said Farooqi. “And that kind of spread goes from the service side of the economy to the manufacturing industry. And then instead of a strong rebound, we get a slower growth rate or even a return to contraction. ”