Preliminary data suggests that the U.S. economic rebound may have stalled this month in response to a resurgence in Covid-19 infections — for economists, virus containment remains the key to economic recovery.
Despite some surprisingly strong U.S. economic data for May and June, economists report that more recent indications suggest momentum has slowed.
For instance, initial jobless claims for last week rose again for the first time since March.
In a research note, National Bank Financial Inc. (NBF) said the climb in jobless claims is “a sign that the healing of [the] labour market has temporarily stopped amid a rise in coronavirus cases in some states.”
Moreover, NBF noted that this gloomy indicator echoed other recent releases, such as the New York Fed Weekly economic index, and Google data that tracks mobility for certain sectors.
RBC Economics said that the mobility data “suggests that shopping traffic has slowed in places like Florida, Texas, and California.”
These early indications that the U.S. recovery might be stalling are “fueling financial market volatility,” TD Economics said.
“The next few weeks will be a crucial test for the recovery, one that almost entirely rests on how successful the country is in controlling the outbreak of new cases,” said BMO Capital Markets.
Going forward, RBC expects that economic weakness will mean a slower recovery in Q3, not a return to the depths of Q2. “But downside risks have not gone away,” the bank said.
In Canada, recent economic data has been relatively positive, including rebounds in manufacturing and retail sales in June, stronger home resales, and a recovery in domestic air travel.
“Canadian economic reports for the early recovery period have also continued to look a little better-than-expected — but, critically, without the same level of escalation in virus spread as south of the border,” RBC said.
RBC expects next week’s GDP reading for May will come in around 5%, well ahead of the consensus 3% estimate, which suggests that “there is some scope for Canada to outperform the U.S. in the very near-term provided virus spread can remain relatively well contained,” the bank said.
“The future economic path is contingent on the pandemic path, therefore, keeping a lid on new cases is essential for recovery,” TD has noted.