December 14, 2020

News in Charts: Will the US recovery falter, as COVID case numbers soar?

by Fathom Consulting.

The US is drawing up policy plans for a relief stimulus package to help its economy through the remaining months of the pandemic. COVID-19 cases are rising sharply once more in the US, and with other major western economies starting their vaccination programmes, the US is facing a key period for getting both its economic and its health programmes in order – challenges that are closely interlinked.

Net non-farm US payrolls in November pointed to an increase of 245,000 people in employment. That marked a slowdown from October’s 610,000 increase, but suggested some resilience in the economy despite a sharp increase in coronavirus infections through the month. It seems likely however that December’s jobs report will show a drop in US employment, as surging infections lead to increased economic restrictions in some states. The California governor, Gavin Newsom, announced on 3 December that stay-at-home orders would automatically be triggered when regions fell below 15% spare capacity in intensive care units. Within days, areas accounting for more than three quarters of the state’s population were subject to the restrictions. The Golden State accounts for 12% of US employment, and 15% of GDP. Nonetheless, with permanent layoffs across the country stabilising at levels below those seen during the Global Financial Crisis, the arrival of vaccines should lead to renewed jobs growth through 2021.

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The US Food & Drugs Administration was expected to issue emergency approval for the Pfizer/BioNTech vaccine within days. While the US vaccination programme is likely to prove the most important factor when thinking about the economic outlook for the coming year, fiscal support also matters. Reports pointed to a possible bipartisan Senate bill that would provide a further $908 billion in support. The bill faces an uncertain future however as the Republican Senate Leader, Mitch McConnell, continues to oppose mooted increases in aid to state and local governments. He has previously supported a package worth $500 billion. The bigger picture is that a strong Republican showing in this year’s Senate races has reduced the likelihood of significant increases in spending by the Biden administration. Nonetheless, US monetary and fiscal support this year has been greater than in peer economies, helping to explain US economic resilience in the face of a relatively lacklustre health response.

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If the Republicans retain the Senate after Georgia’s two run-offs in January, the most plausible path for further fiscal support could be infrastructure spending. With the balance of power in the US upper chamber certain to be finely balanced, more centrist members on either side may be able to find common ground on a package of infrastructure measures. The US’s vaccine development programme Operation Warp Speed is admired as an impressive public-private partnership, and it is possible that some in Congress will be tempted to replicate it, with investment in advanced technology, or in research and development that is critical to national security.

Indeed, such investment could be motivated by concern about the Chinese government’s support for sectors deemed critical by the authorities in Beijing. It is worth noting however that measures of China’s high-tech exports suggest that this support has not paid off yet, and that official and international estimates of China’s high-tech exports are overstated. Nonetheless, rapid vaccine development highlights the economic benefits of investing in science – something that was perhaps overlooked in Washington DC pre-COVID.

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