Key Takeaways
- With reemergence of virus transmission rates nationally, uncertainty is elevated again; high frequency real-time indicators of activity suggest momentum may be losing steam, with mobility, in particular, beginning to weaken.
- If COVID-19 cases continue to rise at the current pace, it is only a matter of time before states shut down more parts of their economy.
- The bounce-back in the third quarter real GDP growth--of 22.2% (annualized)--in our June forecast is now at risk of weakening.
Traditional economic data (which gets published with varying degrees of time lag) shows economic activity picking up at above consensus pace in May and June following a sharp decline in the preceding two months. While good news, it is backward looking. The more recent rise in COVID-19 cases across large swaths of the country in July gives us reason to question the sustainability of current economic momentum.
COVID-19 cases have risen by 60% since mid-June (see chart 1), and if cases continue to rise at the current pace, it is only a matter of time before states shut down more parts of their economy in fear of overwhelming hospital capacity. States like California, Texas, and Florida--which are ranked in the top five states by GDP measure and together account for close to 28% of the economy (see chart 2)--have already started instating and reinstating restrictions on indoor and group activities. Mobility has started to weaken with increasing new restrictions (see chart 3), and the fear is that the once hopeful bounce-back in the third quarter (22.2% annualized growth in real GDP in S&P Global Economics June forecast) is now at risk of weakening.
Restaurant reservations have started to reverse course once again, and movie theaters have yet to make any strides (see charts 4-5). Flying remains out of favor, still, and U.S. crude oil patches have yet to turn on the spigots (see charts 6-7). In addition, capacity utilization of raw steel production remains subpar, and consumer confidence appears to show a tentative reversal that's not as strong (see charts 8-10), in sharp contrast with some other offsetting encouraging demand activity (see charts 11-13) that has also helped price reversals (see charts 14-16). People-facing service sectors' ability to grow has taken a hit directly once again, and that means the composite economic activity is likely to stall on its recovery path, unemployment insurance claims will continue to stay elevated in the near term, and the news cycle will take a turn to become more pessimistic (see charts 17-20).
The longer the duration of virus uncertainty and unemployment status, the higher the chances of more business failures in the future despite high new business applications and a steady increase in reopenings since April (see charts 21-22). Consumer spending will also likely hit a pause after a long climb back in both low-income and high-income localities (see chart 23-24). The missing spending multiplier from high income areas will surely pose a headwind to further recovery. Small businesses that have already spent small business loans to survive so far are seeing risk to business continuity rise. The spring in the housing market (see chart 25) is also at risk now, especially--beyond the pent up demand from the delayed spring buying season and that the virus is limiting activity more in a majority of growth areas in the South.
The path of the virus will dictate the terms. Unless the spread of the virus is controlled in the coming weeks, it will be more likely that downside risk to our baseline outlook from June will be realized. Although our base case is for a slow recovery through next year, the surge in COVID-19 cases and hospitalizations have raised concerns that a double-dip recession (our June pessimistic scenario) may be on the horizon (assuming that the National Bureau of Economic Research [NBER] calls the end of the COVID-19 recession in May, as noted in our June report.)
Chart 1
Chart 2
Chart 3
Chart 4
Chart 5
Chart 6
Chart 7
Chart 8
Chart 9
Chart 10
Chart 11
Chart 12
Chart 13
Chart 14
Chart 15
Chart 16
Chart 17
Chart 18
Chart 19
Chart 20
Chart 21
Chart 22
Chart 23
Chart 24
Chart 25
This report does not constitute a rating action.
| U.S. Chief Economist: | Beth Ann Bovino, New York (1) 212-438-1652; bethann.bovino@spglobal.com |
| U.S. Senior Economist: | Satyam Panday, New York + 1 (212) 438 6009; satyam.panday@spglobal.com |
| Research Contributors: | Debabrata Das, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai |
| Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai | |
| Shruti Galwankar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.