A quick reopening, a surge in infections, and a recovery of the US at risk

ROCK HILL, SC (Reuters) – When Texas reopened bars for Memorial Day weekend last month, locked-in millennials and Gen Zers made the most of it, circumventing social distancing rules to pack clubs and pressing their credit card expenses in the next two weeks at 2019 levels.

That brief adventure with a more complete economic reopening, replicated in southern states like Florida and South Carolina, has escalated into a resurgence of new coronavirus cases that is now changing the nature of the pandemic and is likely to prove the strength of a wider economic rebound.

Reports of increasing outbreaks in places like Florida and Texas have pointed out that it is now younger adults who become infected with COVID-19, the respiratory disease caused by the coronavirus. That could moderate the death rate, since young adults are less likely to die from the disease, but it could also reverse the economic reopening of the country’s mosaic.

Already hectic, the situation may grow bleaker as some towns backtrack on reopening plans, closing stores, and Americans rank among those willing to risk further exposure and those who follow health guidelines.

It’s a recipe, economists and epidemiologists warn, for a silent recovery that could turn recent good news into little more than a false head. A recent drop in daily deaths can also be fleeting. Hospitalizations are on the rise in Texas, and health experts warn that the spread of the virus among those at lower risk for serious illness, such as young adults, will eventually spread to those at higher risk for serious complications.

“There is an inevitable mix,” said Amesh Adalja, principal investigator at the Johns Hopkins University Center for Health Safety. “You will probably see an increase in deaths.”

And that dynamic could be poisonous to any economic recovery.

“If you add the risk-tolerant to going unmasked to indoor parties, then the virus will prevail … and the risk adversary will still be afraid to buy back,” said James Stock, professor of economics at Harvard University. . “Therefore, the recession is lengthening and perhaps deepening.”

Stock, along with other researchers, has proposed ways to balance the reopening of the economy with measures to control the spread of the virus. However, there is little sense of national agreement on any type of system like that, or what happens if COVID-19 begins to spread more uncontrollably.

DIFFERENT PATH

Leading economists are struggling with what the recent surge in cases could mean.

Does it show, as Evercore ISI Vice President Krishna Guha recently observed, the fragility of the American market if people are afraid to cross state lines? Or, as suggested by St. Louis Federal Reserve Chairman James Bullard, are there different judgments about risk and risk management between different people, companies, and regions, simply about how the recovery will move to a new equilibrium ?

Republican-ruled states, particularly in the south, were hesitant to crack down early on in the pandemic and were quicker to relax restrictions. They are now seeing record growth in COVID-19 cases, and their residents have been targeted by state-mandated quarantines, including New York, which were hardest hit at the start of the crisis, but have made the most progress in suppressing the virus.

West Virginia Governor Jim Justice, a Republican, warned against the trip to Myrtle Beach after cases in his state were linked to infections at the popular South Carolina resort, and some politicians who quickly reopened changed their tactic.

Over the course of a week, Texas Governor Greg Abbott, a Republican, went from encouraging people to “stay home” to issuing an edict on Friday that closed bars, reduced restaurant capacity and reduced other activities.

Florida authorities also announced Friday that bars in the state should stop serving alcohol on the premises immediately.

Speaking to the Florida Chamber of Commerce on Thursday, Atlanta Fed President Raphael Bostic said that if a significant number of people returned to public life without following health rules, it would put the economy “in a different kind of trajectory. ”

“Even though it won’t be all at once, people could just raise their hands and say ‘you know what, it’s not worth it,'” Bostic said. “’I’ll just make my takeout. I’ll do Netflix instead of going to the movies. ”

SLOWER PHASE

There have been positive surprises. US employment unexpectedly increased in May, and retail sales rebounded sharply from a historic collapse.

But that can be a false dawn if the states in which the activity recovers more quickly demonstrate to have given a new point of support to the pandemic.

JPMorgan economist Jesse Edgerton has drawn a rough correlation between increased restaurant visits in some states and the growth of infections two weeks later.

“Even if we move to a new normal where young people are willing to go out and spend again, there will be people who stay home, not traveling, not going to restaurants,” Edgerton said. Furthermore, “we don’t know for sure whether the people who will go out and spend now will continue to do so.”

An Oxford Economics “recovery tracker” combining 20 economic, health and social metrics began to grow steadily in early April, but flattened in June. It may decrease further if cases continue to grow, said Gregory Daco, chief economist at Oxford in the United States.

“After a strong first phase of recovery, one in which solid growth data from depressed levels gives the false impression of an immediate return to pre-Covid economic dynamism, the economy appears to be entering the second slower phase” Daco wrote in a statement. Recent analysis. “The basis of this recovery is to improve the prospects for health. If that measure continues to deteriorate, confidence will follow suit. ”