Economic Recovery Slowed By Uncertainty On Election, Vaccine

The U.S. economy has recovered about half of the 22 million jobs lost during the depths of the coronavirus shutdowns, but uncertainty over the presidential election and the timetable for a COVID-19 vaccine is causing a slowdown in hiring and business investment, economists say.

The number of people filing first-time claims for unemployment benefits is hovering around 860,000 per week, a big improvement from March and April but still far higher than the recession of 2008-2009.

"There is ongoing job loss, even as the economy slowly heals," said Bankrate.com senior economic analyst Mark Hamrick. "The recovery gained some traction over the summer, but shows some sign of lost momentum here as autumn advances."

Among the latest drags on the economy are the resurgence of COVID-19 around the world, the failure of Washington to approve another stimulus bill and uncertainty over the November election, he said.

The unemployment rate has fallen from a peak of 14.7 percent in April to 8.4 percent in August. That's rapid improvement, but still a long way from the historically low jobless rate of 3.5 percent in February.

There are other signs that the recovery has entered a bumpy stretch. Orders for durable goods, for example, rose 0.4 percent in August, well below expectations. The Dow Jones Industrial Average and the S&P 500 have posted four-week losing streaks.

While the housing market is strong, sectors including restaurants, hotels and airlines are still hurting.

With polls in the presidential race generally tightening, business leaders are unsure whether they'll get another four years of President Trump's low-regulation, low-tax agenda, or a promised major tax increase from Democrat Joseph R. Biden.

"The policy uncertainty makes businesses who otherwise would think about investing, very skittish about bringing on new employees or increasing the hours of current employees," said Harry Broadman, managing director and chair of the emerging markets practice at Berkeley Research Group. "There's just a lot of sentiment up in the air right now. I don't think people are very optimistic about the economy. When you have a lot of skittishness, it ultimately will chill spending behavior and investment behavior."

Scott Baier, professor of economics at Clemson University, agreed that the election five weeks away is causing business leaders to hold back.

"There's a tremendous amount of uncertainty on business decisions," Mr. Baier said in an interview. "I don't think you could have a bigger, more stark contrast in terms of the two candidates."

He said the unreliability of polls in the 2016 presidential campaign could be contributing to the uncertainty now.

"Even though Vice President Biden may have a seven-or a 10-point lead, I'm not certain how much faith people have in that estimate," Mr. Baier said.

Economist Stephen Moore, an outside adviser to the president, said the first presidential debate on Tuesday also could have a disproportional impact on financial markets if Mr. Trump has a bad night. And a plummeting stock market, in turn, could hurt the president's reelection prospects.

"Let's say he has a poor performance," Mr. Moore said in an interview. "And then the odds of Trump winning fall. Then you'll see the stock market fall. This is something Trump has to avoid. We're now close enough to the election that you could potentially see a stock market crash before the election if people thought that it was very likely that Biden was going to win. And that's something Trump has to worry about."

Mr. Moore characterized the recovery so far as "very strong."

"But it's also true that the pace is slowing," he said. "Getting the first 10 million jobs back wasn't easy, but we did it pretty quickly. But getting the next 10 million jobs back isn't going to be as easy, because we've done some substantial damage to the economy with these lockdowns that persist in many states."

He likened the recovery to being "halfway done with a marathon."

"And the worry is that we run out of gas, that we just start slowing down," Mr. Moore said. "I think that the economy, especially individual investment and business investment, are in a holding pattern right now to see what happens in November."

The president is banking on a third-quarter GDP report, due out just before Election Day, to show the economy growing by as much as 35%.

"It'll come out two days, three days before the election, which I'm very happy about," Mr. Trump said Friday.

While the report for the July-September period will be historically strong, economists say the rapid growth is partly a reflection of how bad things were at rock bottom, and that millions of people will still be unemployed when voters finish casting their ballots. They also say the economy won't fully recover until a proven vaccine is widely available.

"If some things go smoothly, and we get a vaccine early next year administered to 150 or 200 million people — if we get there, then there still is damage to the economy that will have to be undone," said Charles Ballard, professor of economics at Michigan State University. "Most of the forecasts that I have seen say that 2022 is the year when we can expect the economy to get back to something like what it was. For one thing, a lot of businesses have failed."

By one estimate, as many as 80,000 businesses closed permanently from March through July.

After two months of stalemate, House Speaker Nancy Pelosi and Democrats are preparing a revised coronavirus relief package of roughly $2.2 trillion, more than $1 trillion less than a measure they approved in May. But that amount is still about $700 billion more than the White House and some Senate Republicans are willing to spend.

Mr. Moore said he told the president in a briefing last week that any new government aid wouldn't affect the economy in time for the election. The government already has spent more than $3 trillion in emergency pandemic aid this year.

"One of the most important things I said is, 'Mr. President, it's not going to help you. Even if you got a deal tomorrow, it's not going to help the economy this year. It just can't,'" Mr. Moore said.

He said of the president, "He wants a stimulus plan. But he also is, I think wisely, not willing to pay Nancy Pelosi's ransom. He sounded very frustrated. Pelosi isn't negotiating; she wants a surrender treaty from Trump."

Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven T. Mnuchin told the Senate Banking Committee last week that about $330 billion in unspent coronavirus aid could still be used to help hard-hit households and businesses.

Mr. Broadman, who served in the administrations of George H.W. Bush and Bill Clinton, said in an interview that any stimulus bill should focus on a major infrastructure rebuilding plan.

"To me, this is the operative time," he said. "It's labor intensive, rather than capital intensive. You can probably do a lot of it in a socially distanced manner. That would be a smart way of using your fiscal resources, actually to help strengthen the backbone of the economy."