States with faster reopening plans aren't showing a significant rebound: Economist

Moody’s Analytics Economist Maria Cosma joins Yahoo Finance’s Seana Smith to discuss the U.S. economic outlook as some states aim for more aggressive reopening plans amid the coronavirus.

Video Transcript

SEANA SMITH: Well, the coronavirus' devastating impact on the economy is still unfolding. We have the number of Americans losing their jobs at a record high, more than 20 million Americans filing for unemployment in the month of April alone. Now, with many states starting to reopen their economies, there is a debate out there about whether or not it will actually help stem some of those job losses.

So for more on this, I want to bring in Maria Cosma, economist at Moody's Analytics. And Maria, let's just start with what Moody's is doing here. So Moody's has constructed a tool forecasting the supply-side implications for employment of states reopening. What metrics are you factoring into this at this point?

MARIA COSMA: Yeah, so if you think back in March when different cities, counties, and states started to go into lockdown, economic activity was largely driven by the restrictions, right? So who was hiring or laying off workers, where people were shopping, what people were doing was largely being determined by which stores and businesses were allowed to remain open.

Now, reopening the economy is not that simple. It won't be like turning on a light switch. Each state has been creating its own phased plan for letting businesses reopen, and this will partly determine the strength and speed of the recovery. And in our report, with the tool we constructed, we mapped out roughly which industries will be reopening at which point. But if some states decide to move faster than others, that doesn't necessarily mean that their recoveries will be stronger.

And although it's a bit early to tell, we've been looking at daily and weekly indicators of economic activity, which show that states with more aggressive reopening plans, like Florida and Georgia, aren't showing a significant rebound, relative to other states that are still in strict lockdown. And that's because the demand side matters too. So until people feel comfortable enough leaving their homes to go to a restaurant or get a haircut, demand will be weak, which translates to a slow and gradual economic recovery.

SEANA SMITH: Yeah, and Maria, when we talk about this, there's also the debate out there about whether or not re-opening too early, if that could cause a second wave. As states do risk a second wave from opening so early, I guess what do you think the economic fallout-- will be worse the second time around?

MARIA COSMA: It could be. It could certainly be worse, and there's a couple of reasons for that. So first of all, uncertainty is a large corrosive on the economy, on economic activity, on consumer spending and business investment. So if businesses and consumers have to face some sort of whiplash-- you know, states say, OK, we'll reopen now, and then a second wave of cases hits and they have to go back into lockdown-- I mean, that uncertainty will cause its own economic pain.

And then you have to also consider the cumulative impact of so many, you know, lost wages, lost sales and revenues for companies. So all of that will lead to, you know, a double-- W shape or a double-dip recession, and it could also lead to a lot of businesses closing permanently. You know, small businesses, in particular, are very vulnerable right now because they don't necessarily have the cash to, you know, tide themselves over until reopening.

Of course, this will depend also on what the fiscal response is, whether we have enough stimulus to help individuals and businesses. But overall, the impacts would be very negative, and it could be disastrous.

SEANA SMITH: Maria, do you think we've seen a peak in unemployment at this point?

MARIA COSMA: For now, in May, possibly there will be a peak. But of course, it all depends on the impact of the virus, right? And the trajectory of the virus. So if there is a second wave or, you know, a third wave, like the 1918 pandemic, that could send unemployment even higher. But if we assume that, you know, the peak of cases has passed, then April and May will be the worst and the peak of this crisis.

SEANA SMITH: Maria, do you think we need-- you mentioned fiscal policy there. Do you think we need additional measures at this point, in order to help the economy rebound?

MARIA COSMA: Well, if states, you know, continue to remain in lockdown, which they are, and they continue to do this throughout the summer, I mean, that's going to be several more months of closed businesses, of layoffs, of reduced working hours. So at that point, the federal government should step in and provide more stimulus checks, more loans to small businesses because one-time payments will not be enough to cover the amount of economic damage that we could see over the next few months.

SEANA SMITH: And would-- I know this is a hard question to answer. But from what you're-- from what the data is telling you and from your different models that you are using to forecast, when do you expect employment to return to its pre-COVID-19 levels?

MARIA COSMA: Sure, so if you only look at the supply-side implications, it would really be just as soon as businesses can reopen. But if you take into account the demand side of this, until people feel comfortable, you know, spending and maybe you have some sort of solution to the virus, it's going to take quite a bit longer.

So our baseline forecast, which we just updated for May, it takes a sort of more holistic view that goes beyond what I focused on in the report. And in our baseline forecast, in Q3, we have employment jumping up to recoup about 50% of the jobs lost in Q2. But in terms of a full recovery back to where we were before COVID-19 hit, that's not going to be until 2023, 2024 by our baseline assumptions.

SEANA SMITH: All right, Maria Cosma, economist at Moody's Analytics, thanks so much for joining us.

MARIA COSMA: Of course.