More than 18 million individuals worldwide have been infected with COVID-19, and the death toll is fast approaching 700,000. With close to 5 million infections, the United States remains the epicenter of the COVID-19 pandemic.
Even as officials rush to implement stringent measures, it may take longer than expected to recover from the consequences of the COVID-19 pandemic on the US economy.
Unfortunately, researchers cannot offer concrete information regarding the economic damage of COVID-19 due to the uncertainties experienced in the last few months.
The months of June and May experienced a slowdown in the disease transmission, with the economy portraying evident signs of rebounding. Businesses opened and rehired their staff, raising the number of job gains. Demand for consumer goods steadily rose as shops reopened, with customers confidently visiting the establishments.
Unfortunately, the reprieve was short-lived. COVID infections started rising at the onset of July, with the southwestern and southeastern parts being hard hit this round. Local and state governments rolled back on re-openings, closing bars, and other establishments to slow down the spread of the disease.
Southern California may be facing the economic impact by the coronavirus outbreak more than the other cities across the United States, as per the key findings from The University of Southern California’s Center for Economic and Social Research. In March 2020, California became the first state in the country to initiate the step of “Stay at Home” statewide, and, since that time, economic activity has ground to a halt; the order remains in place until at least May 15. There is an unprecedented drop in demand for the hospitality industry in the Los Angeles County region, which has resulted in substantially lower occupancies and average rates.
It, therefore, comes as no surprise that layoffs are increasingly switching from temporary to permanent, with the third week of July seeing an increase in unemployment claims for the first time in 4 months!
How Deep is the Economic Mess?
With the conclusion of the second quarter on July 31st, RTI Properties real estate analysts and management experts expect a worse third quarter.
Forecasting models predict that the United States GDP will see an annualized contraction lying somewhere between -25% and -35% in this quarter. But figures outside these values won’t be a surprise when we consider the uncertainties haunting the country’s economic performance in the country.
According to The Employment Situation report released in April 2020, the unemployment rate increased nationwide from 3.5% in February to 4.4% in March, and the national unemployment is on track to exceed 13% in the coming months. In California alone, the unemployment rate has surpassed three million since March. It is clear that the economic repercussions of this pandemic will be severe and are likely to stay long even after the virus dissipates.
There is an even more significant drop in employment levels in Los Angeles — a drop from 16% point to about 45% currently unemployed, which equals about 1.3 million jobs have lost in Los Angeles County.
Related Article: Coronavirus Impact On Los Angeles Housing Market
However, a peek at the 2nd quarter’s economic damage can give an insight into the depth of the mess we look to escape.
Surprisingly, health safety concerns among customers largely contributed to the reduction in consumption.
In Los Angeles, the entertainment industry, together with the Port of Los Angeles/Long Beach, contributed $1 billion to the economy alone daily prior to this downturn, now just shuttered as a result of COVID-19, which is a massive loss to the economy.
With customers avoiding open stores, we can conclude that business closure is a mild culprit in consumption reduction. Also, bear in mind that consumer spending accounts for about 70% of the USA’s GDP.
Low demand saw most private companies decrease their operations. And a reduction in revenue collection and demand for particular services had a significant impact on government spending, whether at the federal, state, or local levels.
Does the Expiration of Fiscal Policy Spell Doom for USA’s Economy During COVID-19?
The stimulative fiscal policy offered a much-needed relief to the US economy during the second quarter. However, most of the critical policies expired at the end of the second quarter.
Among such policies are the additional unemployment $600 weekly assistance and the eviction moratorium, which puts a hold on foreclosures for homeowners struggling with payments for their federal-backed mortgages. It’s tricky for the US economy to recover without these policies.
Additionally, the continued health concern means demand for some products will remain impaired. And this has a tremendous power to prevent the normal rise of the economy following a recession.
The claim by some officials that fiscal policy is not necessary owing to the performance of particular sectors of the economy is unfounded.
Most companies will likely operate on a limited scale while others will shut down, as long as health concerns prevail. We can, therefore, expect a decline in rehiring, wages, and economic growth.
In a discussion about the long-term consequences of the pandemic, we must pay particular attention to the national debt.
The Great Recession of 2008 left the US grappling with incredible government debt. Whereas we may regard the recession as a temporary fix, we successfully recovered from COVID-19 Impact on the US economy is likely to last for a long time. The likelihood of government debts increasing at a faster rate than GDP is imminent.
In the third quarter, RTI Properties real estate analysts predict to see an extension of the federal eviction moratorium, weekly unemployment insurance benefits, and incentives to hire and retain employees.
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Is Economic Recovery Foreseeable?
Economic recovery and the pandemic are intertwined. We cannot claim to recover from economic shock while the epidemic is still haunting us.
The sharp rise in COVID-19 infections in July and early August may stall the economic recovery. Rollbacks and slowdowns of re-openings, as well as health concerns among consumers, fuel this problem further.
To plot a more explicit way forward, we must know how far we should climb in the recovery process, and how much support the government will offer during the journey.
But we must keep in mind that COVID-19 is unpredictable and uncontrollable, and therefore remains the key variable in the USA’s path to economic recovery.
What to Expect in the Third Quarter
We are going to see unforeseen moves in the third quarter of 2020. But the unpredictability of COVID-19 limits our ability to predict precisely how it will impact the economy in the long term. While the 2020 COVID-19 pandemic will impact the various sectors of the United States, including Southern California, it is confined that a recovery will ensue as soon as the pandemic and economic crisis subsides. It is therefore wise that US citizens and business owners cultivate an open mind, so they react to emerging conditions readily.
Our team of professional property managers at RTI Properties, Inc. is available to inform the implications of COVID-19 on your asset or market and can assist you with any consulting and property management needs that you may have.