This Week In The Economy: Third Wave of Coronavirus Outbreaks, Crisis ‘Far From Over’, Another Year Before US Fully Recovers, Growing Risk of Hard Brexit
By: Brai Odion-Esene
Tags: Coronavirus Update, Brexit, Covid 19 Crisis, Federal Reserve, Macroeconomics

This Week In The Economy: Third Wave of Coronavirus Outbreaks, Crisis ‘Far From Over’, Another Year Before US Fully Recovers, Growing Risk of Hard Brexit

Welcome to a regular snapshot-review of U.S. and international economic news that aims to 1) provide a window into the challenges and decisions facing businesses today, 2) determine the direction of economic policy — such as the speed at which central banks decide to raise interest rates, and 3) assess what the impact will be for consumers.

Parts of The Europe Back In Lockdown As COVID-19 Cases Spike

The number of confirmed COVID-19 cases around the world rose significantly this week, while the number of deaths also continues to increase — 38,971,792 confirmed cases, with 10,953,830 active cases and 1,098,982 fatalities.

The outbreak in the United States shows no signs of abating — at time of writing there were 8,076,402 confirmed cases, 2,669,444 active and 220,889 deaths.

This comes as the midwestern parts of the United States and beyond are witnessing surges in coronavirus cases, with new outbreaks and hospitalizations rising to record levels — pointing to a nationwide resurgence as temperatures get colder.

So far this week (from October 11–15), there have been 249,734 new COVID-19 cases in the United States, compared to 213,854 during the same five-day period last week. On Thursday alone, the U.S. reported 61,025 new cases.

India remains in second place, and the number of confirmed cases has grown to 7,372,394. Of that number, 806,396 are active and there have been 112,219 fatalities.

Brazil is third with 5,170,996 cases at time of writing — 419,037 active and 1452,513 deaths. Russia has 1,369,313 confirmed cases, 289,008 active and 23,723 deaths.

Argentina has once again moved up the list and is now in fifth place with 949,063 cases — 172,588 active, 25,342 fatalities. Colombia is in sixth place with 936,982 confirmed cases, of which 81,694 are active and 28,457 fatalities.

In seventh place, Spain has 921,374 confirmed cases, of that 887,821 are active cases, and 33,553 deaths. Peru is next with 859,740 confirmed cases, 61,413 of them are active and 33,577 fatalities. Mexico has 834,910 cases — 141,437 active and 85,285 deaths.

France is back in the top ten, with 809,684 cases — 672,477 of that number are active, and there have been 33,125 fatalities.

French President Emmanuel Macron this week announced a state of emergency in Europe’s second largest economy, imposing curfew for Paris and eight other major French cities after daily new COVID-19 infection rates reached record levels.

Residents of those cities are now banned from being outdoors at night until the early hours of the morning, except for essential reasons, with the restrictions expected to remain in place for at least four weeks.

In addition to Paris and its region, Grenoble, Lille, Lyon, Marseille, Montpellier, Rouen, Saint-Étienne and Toulouse were being targeted by the measures.

IMF/World Bank: Pandemic Crisis ‘Far From Over’, Inequalities Being Exacerbated

The International Monetary Fund this week released updated forecasts for the global economy, part of its semi-annual World Economic Outlook.

And while economic activity around the world is recovering following the collapse witnessed in the early part of 2020, “this crisis is however far from over,” the IMF warned, with employment still far below pre-pandemic levels and low-income workers, youth, and women being harder hit. “The ascent out of this calamity is likely to be long, uneven, and highly uncertain,” it said.

Global economic activity is expected to shrink by 4.4% in 2020, a less severe contraction than forecast in the June 2020 WEO Update. The revision reflects better-than-anticipated second quarter GDP rebounds, mostly in advanced economies, once lockdown measures were eased. Global growth is projected at +5.2% in 2021, a little lower than in the June 2020 WEO Update, “reflecting the more moderate downturn projected for 2020 and consistent with expectations of persistent social distancing.”

“The global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks.” — IMF

However, the IMF predicted that the pandemic will reverse the progress made since the 1990s in reducing global poverty and will increase inequality. In a separate speech, World Bank President David Malpass also noted the “desperate inequality” resulting from the pandemic and economic shutdowns.

“The recession in advanced economies is less severe than had been feared, but in most developing economies, it has become a depression, especially for the poorest. Extreme poverty may rise by 150 million by 2021,” he said.

The downbeat assessment of these two entities was echoed following a meeting of G20 finance ministers and central bankers this week, who noted in a communique afterwards that: “the recovery is uneven, highly uncertain and subject to elevated downside risks.”

“We reaffirm our determination to continue to use all available policy tools as long as required to safeguard people’s lives, jobs and incomes, support the global economic recovery,” the G20 group vowed.

US Economy Roundup: Very Slow, Uneven Recovery Continues

“The COVID-19 recession threw the economy into a very deep hole, and it will take some time, perhap’s another year, for the level of GDP to fully recover to its previous 2019 peak.”

That is the assessment of Federal Reserve Vice Chair Richard Clarida, who also warned in a speech this week that “it will likely take even longer than that for the unemployment rate to return to a level consistent with our maximum-employment mandate.”

Given how long until U.S. economic activity returns to the business cycle peak of February, Clarida said additional support from the central bank — as well as Congress — will be needed.

A whitepaper published by Columbia University’s Center on Poverty and Social Policy this week showed that the monthly poverty rate increased from 15% to 16.7% from February to September 2020, even after taking the CARES Act’s income boosts into account.

The rise was particularly acute for Black and Hispanic people, as well as for children.

The report also found that the expiration of government financial assistance at the end of July contributed to an increase in poverty rates in August and September.

“The CARES Act’s stimulus checks and unemployment benefits lifted more than 18 million individuals out of monthly poverty in April, but this number fell to around 4 million individuals in August and September,” it said.

The U.S. Labor Department reported there were 898,000 first-time applications for unemployment benefits processed by states last week, an increase of 53,000 from the previous week. The number who continue to receive unemployment assistance was 10,018,000 in the week of Oct. 3, a decrease of 1,165,000 from the previous week’s level.

For the week ending October 10, there were 372,891 initial claims for Pandemic Unemployment Assistance. The total number of people claiming some form of unemployment benefits for the week ending September 26 totalled 25,290,325, a decrease of 215,270 from the previous week, but still far outstriping the 1,415,539 persons claiming benefits in all programs in the comparable week in 2019.

Of the above total number, 11,172,335 individuals claimed Pandemic Unemployment Assistance benefits and 2,778,007 individuals claimed Pandemic Emergency Unemployment Compensation benefits.

As for the latest measure of consumer spending, the Census Bureau reported that U.S. retail sales increased by 1.9% in September from August, are were up 5.4% compared to September 2019. Core retail sales,excluding motor vehicle and gasoline sales, rose 1.5% from August and are up 5.9% y/y.

The largest jumps were in clothing and clothing accessory stores (+11%), sporting goods (+5.7%), and department stores (+9.8%). Sales at food and beverages (grocery and liquor) stores were flat, with restaurants experiencing a rebound (+2.1%). Online retailers only reported a 0.5% rise in sales in September, but, not surprisingly, the level is still 24% higher compared to September 2019.

Meanwhile, activity in the manufacturing sector appears to have hit a speed bump. The Federal Reserve this week reported that U.S. industrial production fell 0.6% in September, its first decline after four consecutive months of gains. The central bank also noted that “although production has recovered more than half of its February to April decline, the September reading was still 7.1 percent below its pre-pandemic February level.”

Manufacturing output decreased 0.3% in September and was 6.4% below February’s level. The output of utilities dropped 5.6%, blamed on a more-than-expected drop in demand for air conditioning. Mining production increased 1.7% in September; but remains 14.8% below a year earlier.

Overall, total industrial production was 7.3% lower in September than it was a year earlier.

Brexit Latest— Still Nowhere Near An Agreement Between EU and UK

David Frost, the United Kingdom’s lead negotiator in trade talks with the European Union tweeted this following the conclusion of the latest attempt to hash out an agreement:

Meanwhile Michel Barnier, the EU chief negotiator said in a statement that, “We are absolutely determined to reach a fair deal with the UK. We will do everything we can, but not at any price.”

The points of contention remain the same — ensuring a level playing field between EU and UK businesses, governance, and fishing rights. Talks are scheduled to resume in London next week, with the October 31 deadline for a deal to be reached drawing ever closer.

The risk of a no-deal, i.e. hard, Brexit is rising with each day. UK Prime Minister Boris Johnson had warned back in September that if an agreement can’t be reached in October, “we should both accept that and move on.”