The United States received good news Thursday with the rehiring of 4.9 million people in June, but the economy’s two steps forward in May and June could be followed by a step backward in July.
The problem? A resurgence in coronavirus cases, especially in states that allowed their economies to reopen early, is leading to new restrictions on businesses and consumers.
See: MarketWatch Economic Calendar
At the epicenter of the resurgence of the coronavirus epidemic is the restaurant industry.
The reopening of the restaurants led to the return of some 3 million workers in May and June, representing 40% of the jobs the United States has recovered since the coronavirus avalanche. That is the good news.
Read: The United States recovers 4.8 million jobs, unemployment falls to 11.1%, but rehire will slow down
The bad news? Many of the rehired people could be fired a second time if more states eat back within limits or pause plans to relax the restrictions.
California, Florida, Texas and other states have tightened the restrictions after a new outbreak of COVID-19 cases, while others, such as New York and New Jersey, have delayed plans to allow eating indoors. In California, restaurants in 19 counties were ordered to stop eating indoors for at least three weeks.
Read: Consumer confidence jumps to a 3-month high, but still well below pre-crisis levels
The slowdown in bar and restaurant rehire could take a toll on job growth in the United States in July if new viral outbreaks are not brought under control soon, economists say.
Food and beverage establishments accounted for most of the 7.5 million jobs the economy recovered in the past two months.
However, in early July, restaurants continued to employ approximately 3 million fewer people than before the crisis, a whopping 50% reduction. And the recent outbreak of coronavirus cases means that many of those jobs probably won’t be back anytime soon.
See: Marketwatch Coronavirus Economic Recovery Tracker
Adding insult to injury, fear of contracting the virus has discouraged clients from making reservations or even eating out. Restaurant reservations stalled at the end of June, according to the reservation site OpenTable.
“Consumers were already starting to walk away from restaurants even before states announced reopening breaks and reversals as fear of the spread of the virus began to change consumer behavior,” said chief economist Scott Anderson, from Bank of the West.
Read: In the last dark turn of the pandemic, companies appear to be cutting wages
The eruption of new coronavirus cases is likely to result in minor increases in employment in the coming months, according to most economists. The United States recovered 4.8 million jobs in June and 2.7 million in May, indicating that approximately a third of the jobs lost in the early stages of the pandemic have been restored. The United States hemorrhaged from more than 22 million jobs in March and April.
However, the drive to rehire is unlikely to come to a complete halt, economists say. New York and other northeastern states that were hit hardest by the pandemic from the start are still on track to open more economies. COVID-19 cases have not experienced a similar increase.
Additionally, states have taken a more specific approach to curbing the spread of the virus than at the start of the pandemic.
“They’re tracking him down to people going to bars or traveling to vacation spots,” said Richard Moody, chief economist at Regions Financial. “States are trying to be more surgical this time instead of resorting to general closings. That suggests you won’t see a total reduction in hiring again. “
Finally, hiring is likely to continue at manufacturers, construction companies, tech companies, and other companies where large crowds are absent and social distancing is more easily practiced.
However, there are still many reasons for concern, even if the peak in coronavirus cases decreases. On the one hand, many companies that have reopened appear to be laying off dozens of workers given the low demand for their goods and services.
Evidence can be found in the slow decline in initial unemployment claims – claims for unemployment benefits. They fell slightly last week, but have yet to drop below 2 million a week since mid-March. If the economy was really recovering rapidly, economists say, the new claims should have dropped below 1 million a week.
Read:Unemployment claims continue a slow but steady decline in late June
What could also hurt the economy in July is a lack of clarity on whether Washington will extend emergency unemployment benefits and other crucial aid intended to shore up the economy. The closer to the end of the month without a deal between Democrats and Republicans, the more likely consumer spending and business investment are to decline.
So buckle up your seats for another rocky ride.
“With states returning to reopens, the July jobs report could be much more sobering,” said James Knightley, ING’s chief international economist.
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