Following its second-quarter slump, the U.S. economy has now entered its third and “healing phase,” economists said.
It seems like the U.S. economy is now, if not almost, out of the woods following its two-quarter-long decline triggered by the coronavirus pandemic. As per Bank of America’s latest economic outlook, the country’s economic state is now on its final and most crucial stage.
U.S. economy ended its V-shaped recovery
On Friday, July 10, the Bank of America (BoA) officially ended the U.S. economy’s “V-shaped recovery” stage as it has now begun its final, “healing phase.” BoA’s data show improvement in areas like manufacturing and consumer spending through the end of May.
The upward trend, according to BoA economists, was likely prompted by the government’s stimulus aid as well as states reopening. But, economists explained that the recovery would take a lot of time and will massively depend on the country’s response to fight the spread of coronavirus.
“The healing phase will feel very different. It will be one of slower growth, likely in fits and starts, and will be defined by the path of the virus,” BoA economists wrote in a report, per Business Insider.
Ian Shepherdson, the Chief Economist at Pantheon Macroeconomics, also shares the same view. Previously, he said that “recovery is underway,” citing the spike in U.S. consumer spending. In late-June, the Commerce Department reported a surge of 8.2% in consumer spending.
However, Sheperdson warned that the continuous rise of new coronavirus cases across the country could make it difficult for the U.S economy to bounce back completely.
In addition, the BoA economists also noted that it used high-frequency data rather than waiting on the U.S. economy’s quarterly GDP to analyze the current economic trend.
Congress to pass new relief measures to stabilize trend
The Fed, together with the Congress, will also introduce additional relief measures to help stabilize the country’s current economic state. The initiative was decided following the resurgence of COVID-19 as well as the action of some states to reimpose previous lockdown measures.
According to BoA, the government will likely push another round of financial help by the end of July. But the bank added that the next stimulus is more likely smaller compared to the previous ones.
Economists fear that the U.S. economy might fall again into another decline despite its current performance. With that, the team emphasized the need for additional stimulus aid to maintain and stabilize retail spending’s current trend.
The BoA also mentioned that almost all its economists’ prediction for third quarter’s recovery is connected to the country’s consumer spending. And that roughly two-thirds of the previous quarter’s downturn was prompted by weak consumer spending as well.