Second wave of COVID-19 could set back US economic recovery, economists say

WASHINGTON - A second wave of COVID-19 outbreak across the United States could slow down the country's re-opening efforts and set back the economic recovery, economists have said.

"As of the second week in June, new coronavirus cases are trending higher in 20 states, several of which are seeing record highs," Mark Vitner and Charlie Dougherty, economists at Wells Fargo Securities, wrote Tuesday in a report about potential regional impacts of a second wave of COVID-19.

"While the rise in new cases can be partially explained by factors such as more prevalent testing and reporting lags, some state and local officials have cautioned that further deterioration could strain hospital capacity and necessitate a delay in re-opening plans or even a re-imposition of restrictions on business activity," they wrote.

The two economists noted that the pandemic appears to be intensifying in so-called large Sun Belt metros in the United States, such as the greater Houston metro area and the city of Miami, which had been among the fastest growing in the country prior to the coronavirus crisis.

"Even without new restrictions or lockdown orders, new waves of the coronavirus could by themselves weigh on consumer and business confidence and prolong the return of economic activity to prior peak levels," they said.

The report came as Texas Governor Greg Abbott on Tuesday urged people to stay home after the state reached another high in its daily number of COVID-19 cases.

"If you do not need to go out, the best advice is still to stay at home," Abbott said at a press conference in Austin.

Miami Mayor Francis Suarez also said Monday that the city would not move into the next phase of re-opening because of concern over rising COVID-19 cases.

"As it stands, we are not ready for Phase 3. Although hospitalizations have remained consistent, the overall number of positive cases has increased and even the number of positive cases proportional to testing has slightly increased," Suarez tweeted.

US Federal Reserve (Fed) Chairman Jerome Powell said on Tuesday that the economy may be entering a phase of bouncing back, with the easing of social distancing measures and resumption of business activities, but employment and output will be "well short" of the pre-pandemic level.

"Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it," Powell said at a virtual congressional hearing. "Until the public is confident that the disease is contained, a full recovery is unlikely."

At its policy meeting last week, the Fed kept its benchmark interest rate unchanged at the record-low level of near zero, and projected interest rates to remain at the current level through at least 2022.

The central bank also projected that the US economy will shrink by 6.5 percent in 2020, followed by a 5-percent gain next year.

As the COVID-19 fallout continues to ripple through the country, more than 100 economists on Tuesday urged US Congress to immediately pass another multifaceted relief bill to salvage the pandemic-hit economy.

"If Congress fails to act, state and local governments face potentially disastrous budget shortfalls, and the Congressional Budget Office estimates the unemployment rate will likely be more than 11 percent at the end of the year," the economists said in a statement to congressional leaders released by the Washington Center for Equitable Growth.

The US economy contracted at an annual rate of 5 percent in the first quarter this year, according to the Commerce Department. That figure, however, still does not fully capture COVID-19's economic damage, and many analysts believe that the decline in the second quarter is expected to be much deeper.