Why Wall Street is hopeful about Biden despite economic challenges
New York (CNN Business)It’s tempting to think now that 2020 is over, the economy will soon snap back to normal. But that’s still far off: Americans aren’t spending as much as they used to. Millions remain unemployed. For an economy that runs on consumer spending, that’s a huge issue.
The recovery — and the return to public life — hinges on the coronavirus vaccine rollout. It could take much of 2021 for most Americans to get inoculated, however, and that means life won’t change for many households any time soon as people who can continue to work from home and some schools remain shuttered.
Those restrictions aimed at slowing the spread weigh heavily on consumer spending, which drives roughly two-thirds of the US economy. The reason is simple: if you mostly stay at home, you spend less money.
For the overall economy, that likely means more sluggishness before the great return to normal that is hoped for after the vaccine has been sufficiently doled out.
The Back-to-Normal index from CNN and Moody’s Analytics has declined in recent weeks and now stands at 74%. It reached its peak at the low-80% level in October before rolling back.
The weakened economic activity will continue through the first quarter of 2021, expects Simon MacAdam, senior global economist at Capital Economics.
Even those who were lucky enough to stay employed through this crisis have mostly ramped up their savings rather than spend money, according to James Pomeroy and Henry Ward, economists at HSBC.
More spending in addition to vaccinations could “unlock a wave of reopening and a resurgence in services demand will be the key driver of the global economy in 2021,” they said in a note to clients.
Ongoing jobs crisis
It’s a challenging situation: The American economy can’t recover without the support of healthy consumer spending, but people can’t spend all their cash in the midst of a jobs crisis.
Millions of workers have lost their livelihoods in the pandemic, making them reliant on government help to make ends meet. And many others have seen their pay or hours cut.
More than 19 million Americans received some form of federal benefits in the week ending December 19, according to the Department of Labor. That means that more than 19 million people cannot participate fully in the economy and certainly can’t spend more money.
Making matters worse, the jobs recovery has come to a standstill in December, after months of slowing down.
The US registered a net 140,000 job losses last month, driven by steep declines in the hospitality industry as restaurants and bars are closing again to comply with virus-containing measures.
Worse still, all of the jobs lost last month had been held by women.
Although the jobless will receive some support through the recently signed second stimulus package, which extends pandemic-specific programs and adds $300 per week to state benefits, the crisis naturally weighs on consumer spending, which in turn slows the recovery.
That’s why it’s so important for the incoming administration of to get a handle on the crisis in the labor market.
President-elect Joe Biden has promised to create new jobs and help the unemployed with additional stimulus. But woes in Washington following the violence on Capitol Hill and the renewed effort to impeach President Donald Trump could incite more partisan disagreement rather than getting lawmakers on the same page about the economy.
Source: Read Full Article
