Page 6 - ISQ UK July 2020

INVESTMENT STRATEGY QUARTERLY

U.S. Economic Outlook –

A Strong Initial Rebound and Then…?

Scott J. Brown, PhD, Chief Economist, Raymond James

Efforts to contain the spread of SARS-Cov2, the strain
of coronavirus that causes COVID-19, led to an The fiscal support was as unprecedented as the
unprecedented decline in US economic activity this downturn itself. More will likely be needed.
spring. As states have relaxed social distancing
guidelines, growth has picked up sharply, also on an FISCAL STIMULUS SHORES UP THE SYSTEM
unprecedented scale. However, the initial rebound Federal support has played a key role in countering the
will leave us far short of where we started the year and economic effects of the pandemic. Increased spending on
healthcare was critical in treating the infected. ‘Recovery
there is a lot of uncertainty about the virus and the
rebate’ checks and expanded unemployment insurance
future availability of a vaccine or effective treatment benefits helped to shore up household income. Lending to
against it. A full recovery will take time. small businesses kept many firms operating. Federal aid to the
states offset strains in state and local government budgets.
Social distancing had a major impact on several sectors of the
economy, notably air travel, hotels, restaurants, retail, spectator The fiscal support was as unprecedented as the downturn
events, and healthcare – anything where one would come into itself. More will likely be needed. Extended unemployment
close contact with other people. Job losses in these sectors benefits are set to run out at the end of July. State and local
have been massive. The leisure and hospitality sector lost half budget strains will worsen amid falling revenues and recession-
of its jobs between February and April. A key concern was related spending increases. The first three phases amounted to
whether that economic weakness would snowball – that the nearly $3 trillion, over 14% of gross domestic product (GDP).
corresponding loss of wage income would lead to further Bear in mind that the deficit was running at over $1 trillion per
reductions in consumer spending. That spending is someone year prior to the pandemic, with the economy near full
else’s income. However, second-round effects have appeared employment.
to be relatively limited thanks to government aid.

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