◼ ECONOMICS Bloomberg Businessweek November 16, 2020
43THEBOTTOMLINE Employmenthaspartiallyrecoveredand
there’s still pent-up demand, but the Covid-19 pandemic threatens
the expansion, especially this winter.● The U.S. economy is threatened by the
coronavirus and gridlock over fiscal relief
Will Biden Inherit
A Lame Duck?
There’s conflicting evidence about the buoy-
ancy of the U.S. economy. On one hand, cases
of Covid-19 are spiking as winter approaches,
and with a Democratic president poised to take
office, Republicans are showing no willingness
to spend the kind of money on a relief package
thatDemocratssayis necessary.Ontheother,the
newsisn’tallbad—employmentis recoveringfrom
pandemic-induced lows and the manufacturing
and housing sectors are thriving.
Since all that makes it difficult to know what
kind of economy President-elect Joe Biden will
inherit on Jan. 20, the best you can do is consider
scenarios. The median forecast of 62 economists
surveyed by Bloomberg News is for the economy to
grow at an annual rate of 3.7% in the first quarter.
But the median of the five most recently updated
forecasts is only 2.7%. And Bloomberg’s own econ-
omists see an air pocket ahead, with the economy
shrinking at an annual rate of 0.5% in the first quar-
ter before accelerating for the rest of the year.
The pandemic is a big potential negative, of
course. The seven-day average of new cases in the
U.S. has more than doubled in the past month, to
117,000 a day as of Nov. 9. The daily death toll has
risen by a third, though it’s still less than half its
peak in April. Federal Reserve Chair Jerome Powell
warned at a press conference on Nov. 5 that “the
outlook for the economy is extraordinarily uncer-
tain and will depend in large part on the success of
efforts to keep the virus in check.”
What’s unclear is whether the U.S. can survive
the wave of infections without shutting down again.
Most state and local authorities are taking a surgical
approach, stopping only activities that are known
to be problematic, such as indoor dining in some
states. “It’s not going to be the widespread lockdown
that we saw earlier in the year,” says Blerina Uruci,
senior U.S. economist for Barclays Plc.
But this pandemic has fooled people more than
once. Laissez faire may not be possible if cases
and fatalities continue to build. “Europe today is
the prime example of how quickly a resurgence of
the virus can reverse economic gains,” Steve Blitz,
chief U.S. economist of TS Lombard, wrote in a cli-
ent note on Nov. 6.
Senate Majority Leader Mitch McConnell said the
day after the election that he hoped “partisan pas-
sions” wouldn’t prevent a coronavirus relief pack-
age from being enacted by yearend. But on Nov. 9 he
reiterated his reluctance to go big when he said “tar-
geted” relief should be sufficient, pointing to favor-
able news from Pfizer Inc. on its Covid-19 vaccine
and the drop in the unemployment rate in October
to 6.9%, from 7.9% in September and a high of 14.7%
in April. Republicans are talking about a $500 billion
package, while Democrats want $2.4 trillion, includ-
ing aid to state and local governments.
Economists agree that manufacturing and
housing should remain strong at least through
Inauguration Day because demand is robust and
inventories are low. There’s disagreement about
consumer spending. Jim Paulsen, chief invest-
ment strategist for Minneapolis-based Leuthold
Group LLC, wrote in a note to clients on Nov. 2
that during the pandemic consumers have built
up more than $2.5 trillion in extra savings that’s
“the fuel for a growth bomb waiting to explode.”
Even if there isn’t another relief bill this year,
“personal income will rise 6.5% in 2020, which
is the largest annual gain since a 7.4% increase
back in 2006, and the peak of that cycle’s hous-
ing boom,” Michael Englund, chief economist of
Action Economics LLC, wrote in a Nov. 6 email.
But Aneta Markowska, chief economist of
Jefferies LLC, worries consumption spending will
eventually be dragged down. “The 20+ mln individ-
uals collecting unemployment benefits have experi-
enced a -60% drop in income in the past 3 months,
and we believe they are close to running out of sav-
ings,” she wrote in a Nov. 9 client notewithhercol-
league, money-market economistThomasSimons.
This duck isn’t out of the woods yet.�Peter Coy▼ New U.S. Covid-19
cases, 7-day rolling
average▼Numberofemployed
Americans100k500160m1451302/1/20 11/8/201/2020 10/2020