A new wave of shutdowns is rolling across some of the nation’s biggest states, hitting the economy with another gut-punch and adding to the troubles weighing down President Trump in his bid for reelection.
States like California, Texas and Florida — the nation’s three most populous states — have announced new restrictions recently as all three see cases of COVID-19 soar.
Although the exact nature of the changes varies from state to state, economists agree that the measures will have a significant economic impact. For Trump, the political impact could be ruinous.
A few months ago, the president was banking on a strong economy to buoy his hopes of a second term. Then the national unemployment rate rocketed from 3.5 percent in February to 14.7 percent in April.
Unemployment fell to 11.1 percent in June, but that is still a worse rate than any seen during the Great Recession roughly a decade ago.
Trump continues to pound the drum on the economy. At the White House on Monday, he said that if presumptive Democratic nominee Joe Biden were to be elected in November, “this economy would be destroyed.”
He also said that, despite recent setbacks, “the economy is rebuilding, jobs are being produced at a record pace.”
Economists seem to not share his bullishness, especially as they contemplated the effects of a second wave of shutdowns.
“The reality is that we have always said the course of the recovery is dependent on the course of infections,” said Diane Swonk, chief economist at Grant Thornton. “Infections are going up again, and that has already started a pullback in economic activity.”
The pressure is also on Congress to pass more legislation, experts say.
“The re-intensification of the virus is doing significant damage to the economy. The economy has been going sideways over the past month,” said Mark Zandi, chief economist at Moody’s Analytics. “I think the risks are very high that it will go backwards here if lawmakers don’t come forward with another rescue package.”
Senate Republicans are preparing a proposal that is likely to emerge next week, probably with a price tag of around $1 trillion. But there will still be significant hurdles to overcome to find agreement with the House, where Democrats hold the majority.
Economists say there are at least two major dangers looming right now. One is the direct disruption of activity caused by new shutdowns. The second is the near-certainty that public confidence is taking another serious hit as COVID-19 cases rise in many parts of the nation.
On Monday, California Governor Gavin Newsom ordered the shutting down of indoor activities across the state, including bars and indoor restaurants. The worst hit counties in the Golden State will have even more restrictive measures put in place.
“California, for one, is a real concern — the largest economy in the United States, it is ranked as one of the largest economies in the world,” said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings Services. “That means a huge hit to growth. How long it lasts is what matters — will it be a few weeks or a few months?”
Bovino noted that mandated lockdowns are only part of the story. There are also what she termed “self-imposed” lockdowns “because people are scared.”
If the two factors hit in tandem, Bovino raised the specter of “the so-called W-recession” — a period of economic trouble that includes two separate downturns.
That would likely be devastating news for Trump.
Incumbent presidents struggle badly in adverse economic conditions. The last two presidents to lose their reelection bids — Jimmy Carter in 1980 and George H.W. Bush in 1992 — were both undone primarily by economic travails.
Democrats believe that Trump is particularly vulnerable — not just because of his combative and divisive personality, but also because his management of the pandemic is being thrown into harsher relief as other parts of the world, including Europe, begin to recover.
“It’s all shaking out very badly for the president right now,” said Democratic strategist Tad Devine. “People perceive him as someone who has tried prematurely to reopen the economy, ignored scientific advice — and now everybody is paying the price for his mistakes.”
Republicans dispute that, noting that Trump generally commands better poll ratings on the economy than any other issue. In a recent Economist-YouGov poll, his management of the economy won the approval of 48 percent of adults and the disapproval of 43 percent.
Some also argued against the idea that the economy is destined to go into another tailspin.
“I think no matter what happens we are going to see job growth continue, and we have already seen that for the past two months as the economy is opening up again,” said GOP strategist Ron Bonjean.
Bonjean asserted that the question that really matters is how voters in the battleground states respond: Do they blame the president if they believe there have been premature reopenings, or do they see those decisions “more as a local issue”?
Still, the signs for Trump are not good. In the Economist poll, conducted July 5-7, his management of the pandemic was approved by only 39 percent of Americans, while 57 percent disapproved.
Some of the economic experts who spoke to The Hill also emphasized the depth of the economic turmoil the nation is facing.
Bovino noted that S&P Global’s “base case” scenario was one in which unemployment did not return to its pre-pandemic lows until late 2023.
That would be much too late for Trump.
As Zandi, the Moody’s economist, put it.
“The economy went from being a significant tailwind to his reelection to now being a gale-force headwind,” he said.