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Chief economist update: Not easy easing restrictions

"As the economy reopens, incoming data are beginning to reflect a resumption of economic activity: Many businesses are opening their doors, hiring is picking up, and spending is increasing. Employment moved higher, and consumer spending rebounded strongly in May. We have entered an important new phase and have done so sooner than expected."

This was what US Federal Reserve chair Jerome Powell declared before the Committee on Financial Services of the House of Representatives two weeks ago (30 June).

True that..."resumption of economic activity".

The Institute for Supply Management (ISM) surveys show the manufacturing and services sectors bouncing back into expansion territory (above 50). The ISM manufacturing index rose to 52.6 in June - the second straight month of improvement - after dropping to an 11-year low reading of 41.5 in April. The ISM non-manufacturing index's rebound was stronger - up to 57.1 in June from 45.4 in May and April's 11-year low reading of 41.8.

..."hiring is picking up".

The US economy has added 2.7 million jobs in May and 4.8 million in June after shedding 1.3 million jobs in March and 20.5 million in April. The unemployment rate has declined to 11.1% in June from 13.3% in May and 14.7% in April - a record high.

..."spending is increasing".

US retail sales soared by 17.7% in the month of May, more than reversing the record 14.7% slump in the previous month as businesses reopened and workers went back to work.

Consumer confidence has also improved. The Conference Board and the University of Michigan's consumer sentiment index have risen sequentially in May and June from the seven-year lows plumbed in April.

But as Powell warned in his testimony: "While this bounceback in economic activity is welcome, it also presents new challenges—notably, the need to keep the virus in check." stats show that the virus is not in check. As at 14 July, the US still leads the world in terms of total infections (3.5 million or 26% of the world total); new cases of infections (65,452); deaths (138,247); and, active cases (1.8 million).

Rising cases of infection are being recorded notably in Florida, Arizona, California, and Texas.

As a result, more than 70% of the country have deferred or reversed further reopening plans, according to Goldman Sachs.

This should stall the fledgling recovery at best ... and it may already be underway.

"Bloomberg highlighted five indicators of the recent slump: a decline in hours worked in Texas-Florida-Arizona; a leveling off in the percentage of Americans who are working; a drop in restaurant reservations on Open Table (particularly in areas with rising infections); a slowdown in the New York Fed's real-time economic index following a big rebound in May and early June; and housing market stress." (Factset).

Indeed, "The path forward for the economy is extraordinarily uncertain," Powell said.

Read our full COVID-19 news coverage and analysis here.

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