WASHINGTON (AFP) – Hiring is surging and wages are rising in the United States (US) as the year begins, but the coronavirus is poised to infect the economy and hamper US President Donald Trump’s re-election bid.
Wall Street tumbled in recent days as the outbreak spread and undermined the view that the US economy is inoculated against the danger.
The White House tried to downplay the impact, and Trump on Friday even made the extraordinary claim that US businesses are benefitting from people staying in the country while predicting stocks would bounce back.
But private economists warned the positive data presents an outdated picture, and more real-time gauges of economic activity already show the spreading alarm.
That is all the more dangerous in an economy dominated by the services sector: factories can ramp up production once the danger is passed, but if people stop going to movie theaters, sporting events and hotels, those earnings are lost forever.
And workers in many of those businesses do not have paid sick leave, meaning they may go to work while infected with the virus or lose money they would otherwise spend if they take time off.
“It’s not a health pandemic yet… it’s what I call an economic pandemic,” Diane Swonk of Grant Thornton said on CNBC. “The global effect of all these things happening simultaneously is compounding the impact and the fallout for the US.”
Trump on Friday once again demanded the Federal Reserve lower borrowing rates to stimulate the economy, even though the central bank announced an emergency rate cut on Tuesday.
“The Fed should cut and the Fed should stimulate,” Trump told reporters as he signed a bill providing USD8.3 billion for the coronavirus response.
In fact, most economists – and financial markets – overwhelmingly expect Trump will get what he wants: another half-point chop to the Fed’s benchmark policy interest rate.
Calm before the storm
The US economy produced another blockbuster hiring spree in February, adding 273,000 new jobs, and the January figure was revised up to show the same increase, according to the closely-watched Labor Department report.
The back-to-back surges blew away all expectations.
The strong hiring put the unemployment rate at 3.5 per cent, dipping from 3.6 per cent in January, near a 50-year low.
The job gains mean the monthly average for 2020 was 273,000, far outpacing the 178,000 monthly pace in 2019.
But that was before the major shutdowns caused by the outbreak that began in China before spreading to numerous countries. Infections now number more than 100,000 worldwide, with 3,400 deaths.
“Overall, these are great numbers, but unfortunately this is news from another planet,” Ian Shepherdson of Pantheon Macroeconomics said in an analysis.
“Pre-virus, the labour market was strong, if weather-assisted. Now, trouble is coming, fast.”
In fact, a Fed survey released on Wednesday contained dozens of mentions of the virus outbreak, with widespread impact already seen across the country, including people refusing to go to Chinese restaurants.
And the report said “producers feared further disruptions in the coming weeks”.
Temporary and short-lived
White House economic advisor Larry Kudlow acknowledged there would be some effects on the economy but urged calm. “I’ve argued and I will continue to argue economic problems are going to be temporary and short-lived,” he said on CNBC. “The virus is not going to last forever.”
But he said the administration is considering some targetted stimulus measures to help businesses and individuals “in areas that have been hit the worst” including “people who may be stranded at home and will lose pay”.
“We’re not looking at big, expensive macro cash rebates, helicopter money from the sky. That never works,” Kudlow said on Fox Business Network.
Still Wall Street shrugged off the positive economic data, opening lower again on Friday and now down about 13 per cent from the peak on February 12. The jobs report also showed average hourly earnings increased by nine cents compared to the prior month to USD28.52, and are up 3.0 per cent over the past 12 months, outstripping inflation, according to the data.
Unseasonably warm winter weather saw construction companies add another 42,000 workers in February, after hiring 49,000 in January -far surpassing the 2019 average of 13,000 a month, the report said.
But in a potential early sign of a virus impact, the transportation and warehousing sector lost 13,000 jobs in the month.