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U.S. Depression? The V-Shaped Recovery Fades Away

May 10, 2020

U.S. Depression? The V-Shaped Recovery Fades Away

The recent jobless claims figures show how difficult it will be for the U.S. recovery to be as quick and strong as initially expected.

  • 7.7 million jobs were lost in Hospitality and Leisure in April, 2.5 million in Education and Health, with 2 million in Retail and another 2 million in Professional Services. These sectors are unlikely to recover fast and enough to compensate the job losses of the past month and even less likely to see the same level of wages of 2019.
  • Credit card delinquencies are rising, and retail sales are going to see a very modest recovery because household debt is increasing, wages are under pressure and most citizens are changing their consumption patterns, looking to strengthen their savings in case another shock arrives.
  • Corporate debt is rising to new records due to the collapse in operating revenues. As such, companies will likely take all possible measures to conserve cash flow, reduce expenditure and be prudent about hiring decisions. This will lead to slower job creation and investment even once the economy opens.
  • Tax increases are likely to affect the recovery. The government deficit is soaring, with the Treasury looking at $2 trillion of new debt in 2020 due to the measures implemented to combat the economic impact of coronavirus. Unfortunately, the Democrats are looking to increase taxes just when the economy needs more investment and attraction of capital. If taxes rise significantly, what is already a weak outlook for capital expenditure and job creation is likely to worsen.

All of this makes a V-shaped recovery even more challenging than before. However, the U.S. economy is likely to recover faster than the Eurozone and suffer less in 2020.

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