All signals are red for the American economy. The past few days have shown one bad omen after another. On Tuesday, The Conference Board revealed that consumer confidence fell by nearly six index points in one month, to its lowest level since 2014. On Thursday, it was announced that 1.4 million new unemployment benefits were claimed this week, up for the second consecutive week .
The big blow came that same Thursday. The Department of Commerce estimated the fall in the U.S. economy in the second quarter of this year at 9.5 percent of gross domestic product, or $ 1.8 trillion. In the United States, quarterly figures are extrapolated to an annual figure, giving Americans a shocking figure on Thursday morning: 32.9 percent, the worst downturn since World War II. It was a stroke of luck that the main stock market gauge, the S&P 500, had recovered from a deep dip right after the opening in the afternoon. The loss fluctuated around half a percent.
Uncertainty characterizes the US economy, and it appears to be a different uncertainty from that in Europe. On Wednesday, journalists and analysts hoped to gain some clarity during a news conference from Jerome Powell, president of the US central bank. “The path of the economy largely depends on the course of the epidemic, on the measures we are taking to combat it,” he said. And that is exactly why consumers and entrepreneurs in the US are concerned: the measures taken by the US government are just as erratic as the Covid-19 epidemic.
Customers all ask the same questions to investment bank analysts, says James Knightley, chief international economist at ING in New York. “They are all insecure. And if they are insecure, they will be careful with their money, invest less, hire fewer people, in short, not help the economy out of the doldrums. ”
Thirty million unemployed
The political paralysis in the US, exacerbated by the fact that there will be elections in three months, prevents a firm approach to both the epidemic and the resulting economic crisis. Last week, the Republican majority in the Senate came up with a proposal that deviates irreconcilably from the package that a Democratic majority in the House of Representatives adopted ten weeks ago.
The US now has some thirty million unemployed. That is, the official figures speak of 17.5 million – but that is his jobseekers. Thirty million Americans, about a fifth of the workforce, currently depend on the government for unemployment benefits.
The Republicans have proposed to reduce the weekly benefit from $ 600 in the latest aid package to $ 200 in the next. Some employers struggled to find staff, as the accumulated unemployment benefits from state and state governments often exceed the salary for many Americans. But a 67 percent discount also means that these people will make little or no contribution to the economy, says analyst Knightley, as they will fall over the edge of poverty.
That will be the most visible consequence of the economic crisis, Knightley predicts: an increase in the inequality between the rich and the poor, between higher and lower educated Americans. The American middle class mainly works in the service sector and can work from home with salary. People who work in hospitals, in shops, in meat factories, usually at a meager salary, cannot stay at home, so they will become ill more often and lose their jobs.
“For wealthier Americans, the epidemic and crisis are a long way from their own,” Knightley said. He points out that, after a sharp fall in the spring, the S&P 500 has returned to about pre-epidemic levels. “That fuels the social unrest that is already gripping the country.”
How does the uncertainty in the US differ from that in the eurozone? In the EU, too, shaky figures were reported this week on the economic downturn: 11.9 percent in Germany, 12.8 percent in Austria, 15.3 in Belgium. The difference is that disciplined measures in Germany, for example, have led to the epidemic appearing to be somewhat under control.
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In the US, it looked like the peak was over this spring, and states were given guidelines to “reopen.” Some states did so more enthusiastically than the guidelines prescribed, with the result that since June the epidemic has flared up in states it first seemed to miss. Florida had a macabre record for the third consecutive day on Thursday: More deaths each day from the Covid-19 virus. The consequence for the economy is huge. Some states have tightened the reins and closed restaurants again. People dare to shop less, travel less and therefore use less fuel.
“People who predicted a V-shaped recession for the US have been proven wrong,” said ING analyst Knightley. He sees an indication in the advance of the euro. In mid-May, 1 Euro was worth $ 1.08. Two and a half months later, the value of the euro has risen to $ 1.18. “In May, when the situation in Europe was still worrying, people looked to the US as a driver of the economic recovery. That is completely over. Now the US is considered to be the child of concern for the industrialized world. ”
A version of this article also appeared in nrc.next dated July 31, 2020