With the worsening of the Covid-19 crisis generating a new wave of precaution across the country, the onset of winter will be a dark time for the US economy. But when winter is over, it could be bouncing faster than it seems imaginable.
Economists trying to predict what the first quarter will be like have a seemingly impossible task. First, they need to have some sense of how bad this latest increase in Covid cases could be. Second, they need to know what action people and state and local governments will take in response and how this can affect spending. Third, they must weigh the federal government’s relief. Finally, and hopefully, they will have to consider what better things will be seen towards the end of the quarter as the weather improves and the deployment of the vaccine gains strength.
Most forecasters believe that growth will be weaker in the first quarter than in the current quarter and that gross domestic product will remain significantly below the level of the previous year. But with so many moving parts to consider, some are only looking for a modest slowdown, while others believe GDP will shrink, leading to a double-dip recession in the economy.
What could really be more important is not the reading of GDP in the first quarter (an average performance of the economy in the first three months of the year), but the trajectory of the economy over the first quarter. quarter. At this point, it’s possible to venture to guess: really bad and then very good.
Really bad, so it’s happening with Covid. During the week ending Thursday, 1.52 million new cases of Covid in the U.S. had been confirmed, according to Johns Hopkins University, which was nearly double the first week of November. And 18,432 people died from the disease, making it the deadliest period of the pandemic.
These figures are set to worsen in the coming weeks as people travel on holiday, spend more time indoors due to the colder weather and because the large number of people who now have the disease leads to new infections. . The overall model used by the Centers for Disease Control and Prevention, which combines the forecasts of dozens of different epidemiological models, predicts that by the end of January 9, there will be 1.76 million new cases of Covid and 21,608 deaths.
There are already indications that the new pandemic wave is weighing on spending. On Wednesday, the Commerce Department reported that retail sales in November fell 1.1% from the previous month.
One of the strengths of the economy is that while Covid’s figures are much worse than in the spring, the pandemic will not be as damaging economically. “There have been behavioral changes that allow the economy to withstand restrictions and Covid’s rise,” says Bank of America economist Michelle Meyer.
However, these adaptations have their limits. The outdoor dining establishments that have brought together many restaurants do not work as well when it freezes, for example. And coveted fatigue, people tired of safety measures, can temporarily help the economy and cause more damage to the line.
But as the winter holds, Covid’s grip is likely to slow and the pace of economic growth could move to a good level. There are several reasons why.
First, as the calendar moves into 2021, any increase in Covid cases associated with Thanksgiving and the December holidays will decrease. In March, the weather will be warmer again, allowing people to do more outside. New measures, such as improved probation regimes and mask mandates that President-elect Joe Biden says he will appeal, could reduce cases. And last but not least, the combination of the number of people who have already had Covid, in addition to the millions of Americans who will likely have been vaccinated by the end of the quarter, could begin to mitigate the spread of the disease.
As a result, says UBS economist Seth Carpenter, “there will be a big change in behavior.” A wide range of service companies that have borne the brunt of the crisis could see demand return. Vaccinated people can finally catch this flight to see the family. More schools will return to face-to-face learning, freeing up time for parents to work. And, more generally, seeing Covid’s numbers dwindle and knowing that vaccinations are not a fake morning will motivate people to spend more freely. Companies, seeing where things are going, will hire and spend in anticipation of customer returns.
Unfortunately, the pandemic will not be completely overcome and the extent of the improvement in Covid cases in the spring will depend fundamentally on the actions taken since then, says Johns Hopkins epidemiologist Caitlin Rivers. There will probably still be millions of unemployed people, and the finances of many Americans will be in tight straits. But things will look better than they do now, and that will be a start.
An advisory panel on the Food and Drug Administration’s vaccine voted in favor of Moderna’s Covid-19 vaccine for wide distribution, paving the way for the FDA to grant an emergency use authorization for the second vaccine in the United States.
Write to Justin Lahart to [email protected]
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