As President Donald Trump downplays the severity of the coronavirus after leaving Walter Reed National Military Medical Center, tweeting on Monday afternoon, “Don’t be afraid of Covid. Don’t let it dominate your life,” economists continue to underscore that the course of the virus will dictate the course of the economy — and that the U.S. is still very far from being back to business as usual.
“STOCK MARKET UP BIG, 466 Points! 28,149. Great News for America. Jobs, Jobs, Jobs!” Trump tweeted later on Monday.
But under the Trump administration’s push to reopen the economy while dismissing the use of masks and social distancing to stem coronavirus infections, the economy has largely faltered. The unemployment rate hovers at just under 8 percent. The country’s gross domestic product, or the economy’s total output of goods and services, fell by an annualized rate of 31 percent in the three-month period ending in June. Meanwhile, coronavirus cases are on the rise in nearly two dozen states, threatening another period of slow economic growth.
With less than a month until Election Day, Trump’s positive diagnosis could have a significant impact on voters’ views on how effective the administration’s public health policy has been through the pandemic, said Maury Obstfeld, an economics professor at the University of California, Berkeley, and former chief economist at the International Monetary Fund.
“We’re not going to fully get the economy back on track until we bring the virus better under control and [Trump’s diagnosis] illustrates that it’s very hard to insulate yourself from possibility of infection if you’re outside and active,” Obstfeld said. “We certainly don’t want to lock down the entire economy again, particularly since that was not terribly effective last time — but we do have to proceed with caution and not just open up willy-nilly trying to boost the economic numbers.”
The White House’s rush to reopen the economy has resulted in two very different economic pictures on Wall Street and Main Street. Wall Street stocks have soared over the summer as companies closed a striking $496 billion in mergers and acquisitions. Meanwhile, more than 211,000 Americans have died from the contagious coronavirus and more than 7 million people have been reported positive for the virus. For Wall Street, news of Trump’s departure from Walter Reed provides a level of certainty for investors. But Main Street is still waiting for extended unemployment assistance, as lawmakers debate an additional round in bonus unemployment benefits as bills come due for millions of families.
“People need help,” said Sandra Black, a former member of the Council of Economic Advisers under President Barack Obama. “Congress needs to provide money for families — through programs such as expanded unemployment insurance, cash to households, and money to state and local governments. The pandemic has exposed all the weaknesses of our social safety net, and the federal government needs to step in.”
Consumer spending, which accounts for more than two-thirds of the country’s economic output, could soar among higher-income earners as extended lockdowns end and recovery begins. But it could be offset by lower spending among low-income workers without additional unemployment benefits, according to an August report by Christopher D. Carroll with Johns Hopkins University.
The result is what some economists are describing as a “K-shape” recovery, where the economy gets back on track in opposing directions, said Liz Ann Sonders, chief investment strategist with Charles Schwab.
“It’s an environment of haves and have nots,” she said. “There are a heck of a lot of winners in this but there is also carnage in the other direction.”
Wall Street stocks rebounded on Monday from its slip on Friday on news that Trump had tested positive for Covid-19. But it still exposed the country’s weakness to another wave of infections that could lead to more restrictions around business activity, Mark Haefele, Chief Investment Officer at UBS Global Wealth Management told clients in a note on Friday.
Gus Faucher, chief economist with PNC, told NBC News in an emailed statement, “The announcement that President Trump has the coronavirus has added further uncertainty to an already chaotic environment. A surge in coronavirus cases in late 2020 could lead to further business closures.”
A look at how other countries have fared after reopening the economy as the virus continued its spread offers a daunting future for the United States, Obstfeld said. France closed bars in Paris this week as part of a “maximum alert” in the city to stem rising infections. Restaurants in the capital will be allowed to stay open only under stricter safety regulations and requirements to take the individual names and addresses of patrons. Spain took similar steps in Madrid this week, capping social gatherings at six people, among other measures.
“International experience shows it’s clearly possible to do better — but our performance puts us in the category of countries like Brazil and Mexico, rather than New Zealand or Germany,” which have seen declining infection rates, Obstfeld said. “It’s definitely possible to do better, but until we have very effective treatment — and more importantly, an effective vaccine — it’s going to be hard to get fully back to normal.”