The worst of the news from the deepest one-quarter slump in U.S. economic history is in the past. The future is now the challenge, and it is not looking as bright as it once did.
When what had been a finely tuned $21.7 trillion economy came to a screeching halt in March due to the coronavirus pandemic, expectations that were that the decline would only be temporary and the reopening would feature a swift, aggressive recovery.
But the narrative is rapidly changing.
Employment gains that set records in May and June now seem to be evaporating as weekly jobless claims remain stubbornly higher. Consumer spending numbers that had ratcheted up strongly also are grinding lower as fewer people return to normal activities. Rising coronavirus cases are generating pessimism about the rapid economic growth that was supposed to come.
"The premature opening of the economy is beginning to rear its ugly head," said Joseph Brusuelas, chief economist at RSM. "Over the last six weeks, the economy has begun to move sideways and is beginning to look as if it is stalling out."
Economic growth did worse than stagnate in the second quarter.
GDP on an annualized basis tumbled 32.9% in the March-to-June period, not quite as bad as Wall Street estimates but still the worst in recorded history.
Most economists, including those at the White House, have been expecting that the brutal numbers would turn around in the third quarter and provide a sharp rebound to contrast with the unprecedented slump. Those expectations are being tempered.
Goldman Sachs economists reported that its Current Activity Index, which measures a broad scope of metrics, showed to a slightly expansionary 0.5% reading in June that has switched to -3.8% for July. As for the path ahead, the firm said it sees the economy at the mercy of the virus.
"While the inventory drag [in Q2] is likely to reverse in Q3, the path of the virus remains the dominant driver of the near-term growth outlook," Goldman said in a note Thursday.
That reflects sentiment out of the Federal Reserve, which on Wednesday said activity has "picked up somewhat" recently but noted that the virus "will weigh heavily on economic activity, employment, and inflation in the near term."
A separate report Thursday showed how far the jobs market has to go to get back to what only five months ago had been the strongest in 50 years.
Weekly jobless claims topped 1.4 million for the second week in a row as the more than 20 million workers displaced during the shutdown are still having a hard time getting back. Those who have collected for at least two weeks rose to more than 17 million.
"It looks like we're seeing a slowdown in the rate of growth," Fed Chairman Jerome Powell said during his post-meeting news conference. "That might be short-lived, it might not be, and the timing of it seems to be related to the spike in cases that began in the middle of June."
Activity "might still be at a robust level. Honestly, we will not know until we start to see more data come in," Powell added.
Personal income and spending data will be released Friday, then next week will see the big nonfarm payrolls number for July.
FactSet is projecting a gain of 2 million for the month, which is also the number expected from RBC Capital Markets, while Capital Economics sees the number around half that. In any event, the payroll growth likely will be well below the 4.8 million added in June and the 2.7 million in May, and come with an estimated 17.8 million Americans considered out of work heading into July.
The sheer math suggests that a return to economic normal will be taking the stairs back up after falling down an elevator chute to get here.
"It fees like we got about half of the GDP we lost in Q2 back in Q3. Then it's going to be a slog until the pandemic is over," said Mark Zandi, chief economist at Moody's Analytics. "Even then, I don't think we get back to full employment until 2023 and 2024. This is not going to be easy."
Indeed, while the early part of the third quarter showed "a lot of positive momentum" and was pointing to GDP growth in the 15% range, "the big question is how much of that we are likely to lose in July/August given the flattening we've seen in high-frequency data," Aneta Markowska, chief economist at Jefferies, said in a note.
As for a return to full employment: "Our best guess is 4 years," Markowska said.
In the meantime, policy will remain squarely in focus.
The Fed has taken extraordinary steps by slashing overnight borrowing rates to near zero and implementing an unprecedented array of lending and liquidity programs. Congress, meanwhile, is stuck in a political morass as warring partisan factions decide how much public money — and debt — they're willing to commit to the fight.
Brusuelas, the RSM economist, said he sees a swoosh-shaped recovery with a long, slow growth pattern absent strong fiscal intervention and a Covid-19 vaccine.
"My real fear is we're beginning to create the conditions that we observed in the early 1930s, where fiscal fatigue caused a series of policy errors that deepened and broadened and lengthened the Great Depression," he said.
Powell and his Fed colleagues have repeatedly called for more policy help, saying the central bank still has some arrows in its quiver but Congress will need to flex its spending powers.
"The Fed has done what it can. Everything else is on the margin," Zandi said. "It's up to lawmakers now to keep the economy the best they can and get us back to full employment as soon as possible."