COVID-19 resurgence puts U.S. reopening on hold, inequality worsening

Special: Battle Against Novel Coronavirus

More than 20 states in the United States have either paused or partially reversed their staged economic reopening amid a resurgence in U.S. COVID-19 cases that surpassed 3 million on Wednesday.

The renewed coronavirus threat will likely dampen public confidence, undermine consumer spending and investment, and weigh on the fragile recovery nationwide.

What's more, the pandemic has worsened U.S. inequality in income, wealth and opportunity. The longer the current recession lasts, the greater risks will grow across the country, economists and officials warned.

PAUSE IN REOPENING

U.S. states have begun to gradually ease lockdowns and reopen their economies since late April after the pandemic forced many businesses to reduce operations or shut down starting in March.

By early June, all 50 states were in some stage of reopening. However, more than 20 states have either paused or partially reversed their reopening plans following record increases in infections in recent weeks.

Florida, Texas and Arizona with daily new cases breaking new records and rising hospitalizations, have become the country's latest epicenters.

Texas reported more than 10,000 new cases on Tuesday, smashing its previous record for single-day increases and becoming the latest state to reach this grim milestone.

In late June, Texas Governor Greg Abbott announced that the state would pause any further phases of reopening, ordering bars to close and tightening restrictions on certain businesses. Abbott also encouraged Texans to stay home and issued a statewide mask mandate that took effect starting from July 3.

"It is increasingly clear that many governors reopened their states too quickly, reigniting the virus and hurting their economies," Mark Zandi, chief economist of Moody's Analytics, wrote Tuesday in an analysis.

By Wednesday, the country has confirmed over 132,000 virus-related deaths, according to a tally by Johns Hopkins University.

"Obviously the United States followed a very different path than China with respect to COVID-19," Gary Hufbauer, a former U.S. Treasury official and senior fellow at the Peterson Institute for International Economics, told Xinhua on Wednesday.

"In the United States, hard lockdowns were limited, and aggressive tracing was never pursued. That leaves social distancing and masks as the main responses, with a big emphasis on personal responsibility rather than public measures. The result, of course, is a large number of U.S. cases, and many more to come," Hufbauer said.

FRAGILE RECOVERY AT RISK

The resurgence in infections, which has caused economic reopening to be paused or reversed, will likely undermine the public confidence, lead to more cautious consumer and business behavior, and weigh on the fragile recovery nationwide.

Americans have become more pessimistic about the prospects for a quick recovery from the pandemic, according to a survey released by the Financial Times and the Peter G. Peterson Foundation on Tuesday.

About 49 percent of American voters said they believed the outbreak will get worse in their community over the next month, while 63 percent said it will take a year or longer for the U.S. economy to fully recover, the survey showed.

The U.S. economy is showing signs of "levelling off," Federal Reserve Bank of Cleveland President Loretta Mester told CNBC on Tuesday, adding that "it's going to be a long road back to where we were in February."

"That's why the Fed has been saying we're here with our tools and we anticipate having very accommodative monetary policy for quite some time in the future, because it's just going to take a long time to work through this," she added.

Official statistics showed that the U.S. real gross domestic product (GDP) contracted at an annual rate of 5 percent in the first quarter this year, however, the figure still does not fully capture COVID-19's economic damage and many analysts expect the U.S. GDP to sharply shrink at an annual rate of 30-40 percent in the second quarter.

"The rising disease incidence, mostly across our southern 'sunbelt' states, has caused several municipal and state leaders to further restrict or turn back their re-opening plans. This will of course slow economic activity in those states," Michael Hicks, director of the Center for Business and Economic Research at Ball State University in Indiana, told Xinhua via email on Wednesday.

Noting that the disease rather than limited government shutdowns has slowed the economy deeply in the second quarter, Hicks said "large reductions in spending at restaurants, bars, retail outlets and amusement centers occurred prior to closing across most of the nation."

"We continue to make the case that until there is a national testing, tracing and treatment regime in place, any talk of economic recovery is premature at best," said Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP.

Chris Varvares, co-head of U.S. economics at IHS Markit, also said he worries about both the state rollbacks and a surge in infection rates and deaths, which raises the odds that the U.S. economy might be back in recession by the end of the year.

"We have seen some temporarily laid off workers return to their jobs, but permanent unemployment is continuing to rise at a rapid pace," he said.

"I expect unemployment to remain above 10 percent until a vaccine is widely administered. And I don't expect that to happen before June 2021," echoed Hufbauer.

The U.S. economy will face at best "a very agonizingly slow return to normalcy," Hicks said.

INEQUALITY GETTING WORSE

Unfortunately, the burden of the pandemic in the United States falls most heavily on many who are the least able to bear it. For example, the rise in joblessness has been especially severe for lower-wage workers, women, African Americans and Hispanics.

Federal Reserve Chairman Jerome Powell warned that the current downturn risked aggravating longstanding socio-economic disparities in living standards.

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, also recently noted that the pandemic has worsened U.S. inequities in income, wealth, opportunity, and race.

"American inequality is a moral and ethical challenge to our country's founding creed. But research shows it's also a growing economic problem," Harker said, stressing the importance of "an equitable recovery from COVID-19."

Charles Evans, president of the Federal Reserve Bank of Chicago, warned that the longer the current recession lasts or the weaker the recovery is, the greater the risk of lasting damage for female, minority, younger, and less-skilled workers, would be.

"Minority, female-headed, disadvantaged, and younger households have fewer savings to tap in an emergency and may face a greater risk of bankruptcy. Even after the worst of the crisis is past, the scarring of their balance sheets may leave them further behind," he said.

Jeffrey Sachs, an economics professor at Columbia University, said the United States has "a completely failed response" to the pandemic at the national level.

"Other than spending money, there is no public health strategy. Trump only ignores the virus. It's a horrendous situation and reflects the ignorance, incompetence, and cruelty of the president and his team," Sachs told Xinhua via email Wednesday.

"It (recent spike in cases) is already impeding the recovery, with states postponing re-openings or reversing recent re-openings, and with a significant increase in overall uncertainty and political polarization," he said.