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As states eased lockdowns in May, consumer spending saw a record increase and millions were rehired. For a moment, it looked like the economy had turned a corner and a “V”-shaped recovery was within reach.
But that was before cases of the deadly virus soared throughout Southern and Western states that had begun to reopen. Now, Texas has closed bars and reduced restaurant occupancy as the state hits max ICU capacity in some hospitals. And Florida has closed some beaches and restricted alcohol sales in bars, and some California counties are also closing bars again.
“I’d say zero chance [of a “V”-shaped recovery]. The real risk now is we start backsliding and start contracting again,” says Mark Zandi, chief economist at Moody’s Analytics. The resurgence of the virus, he says, has eliminated the potential for a “V” (a steep drop followed by an equally sharp rebound).
On Tuesday, Bank of America put out a report with the headline “From a ‘V’ to an ‘L’ or ‘W.’” Arizona, Florida, Texas, South Carolina, and California—where confirmed COVID-19 cases are surging—account for 37% of U.S. GDP and could pull down nationwide economic growth, the Bank of America economists wrote.
“With a few notable exceptions, the reopening seems to have triggered an initial “V”-shaped recovery… Unfortunately, the reopening has come at a cost: The virus is back,” the report continued. “By the time the growth in the virus peaks, we assume roughly half of the country will be impacted. With half of the country slowly opening and half slowly closing, the economy could flatten out overall.”
On Friday the U.S. Bureau of Labor Statistics will release the June unemployment rate—giving us a better understanding of the rate of recovery in June. Zandi told Fortune he projects the unemployment rate falling from 13.3% to 11.5%. If correct, it would mark the second consecutive month of a falling jobless rate after it peaked at 14.7% in April.
It took only two months for the jobless rate to go from a 50-year low of 3.5% in February to an 80-year high of 14.7% in April. But now, bouncing back sharply to make the other side of that “V” seems increasingly unlikely.