Hopes for a continuous, rapid rebound for the recession-ridden United States economy were dealt another dose of reality on Thursday, with gauges of layoffs, consumer spending, incomes and factory activity all signalling America’s recovery is shifting into low gear.
On the jobs front, claims for initial unemployment benefits filed with states – a proxy for layoffs – fell by 36,000 last week to 837,000, the US Department of Labor reported.
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Though better than expected, the data signals layoffs remain widespread – and that is troubling given only about half of the 22 million jobs lost during coronavirus lockdowns in March and April have been recovered so far.
On the income and spending fronts, the US Department of Commerce on Thursday said US household incomes fell 2.7 percent in August, or $543.5bn.
That larger-than-expected drop was attributed to the expiration of a $600-a-week federal top-up to state unemployment benefits at the end of July.
Meanwhile, consumer spending – the engine of the US economy driving some two-thirds of growth – rose 1 percent in August, a marked slowdown from May and June, when spending soared 8.7 percent and 6.5 percent respectively.
Finally, on the factory front, manufacturing activity in the US continued to grow in August, but at a slower pace than the month before, the Institute for Supply Management reported on Thursday.
The good news: All of these indicators are moving in the right direction for an economic recovery. The trouble is, they are moving less rapidly, which points to a more prolonged recovery from the COVID-19 crisis.
Economists, including US Federal Reserve officials, have warned the economic recovery risks stalling or even derailing unless the White House and Democrats in Congress reach a deal over a new round of virus relief aid.
The stimulus effects of the last round passed in March – which totalled more than $2 trillion – are fading rapidly.
On Wednesday, revised figures showed the US economy contracted 31.4 percent from April-June on an annualised basis. Though slightly less awful than previous estimates by the US Commerce Department, it was still a record-shattering plunge.
Many economists are expecting an impressive rebound when the government reports economic growth figures for the third quarter, which measures activity from July through September.
It is the final three months of the year, however, that are raising concerns.
“The main engine of economic activity is at risk of stalling as the economy rounds the final corner of 2020,” Gregory Daco, chief US economist at Oxford Economics, wrote in a note to clients on Thursday.
“Unless employment growth picks up, or additional fiscal aid is extended, consumer spending is at risk of slowing dramatically during the second phase of the recovery,” he said.
With 33 days left until the US presidential election on November 3, the economy remains the top issue for US voters.
While Tuesday’s debate between President Donald Trump and Democratic presidential nominee Joe Biden offered nothing in the way of thoughtful economic policy discourse, voters at least have plenty of data to digest.
One of the most closely watched US economic barometers – the monthly jobs report – will be published on Friday.