Federal Reserve Bank of Richmond President Thomas Barkin said a rebound in U.S. coronavirus cases to about 50,000 a day has added uncertainty to the outlook and may discourage businesses from hiring or investing.
“An elevated case rate raises economic uncertainty and that affects businesses’ willingness to hire or spend or invest,” Barkin told a virtual conference Wednesday sponsored by West Virginia University. “The persistence of elevated infections and the risk of a second wave have both psychological and practical implications” for businesses and consumers.
The manufacturing, technology and health care sectors are struggling to find workers, he said, adding that unemployment adjusted for labor participation stands at 11%.
The labor market, boosted by $3 trillion in stimulus spending to counter the virus, has slowed in recent months. Of the 22 million people who lost their jobs because of the pandemic, about half have gone back to work. But new job creation has sputtered, dropping to 661,000 in September.
Barkin said predicting the path of the rebound is especially difficult today “with virus uncertainty, with fiscal uncertainty and with political uncertainty,” the latter an evident reference to the upcoming U.S. elections.
Negotiations for an additional stimulus package between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin seem to be stalled this week, and it unclear when or whether they will resume.
“There is a lot of money in people’s pockets,” Barkin said. “That is cushioning the cessation of fiscal stimulus. It could propel the economy at some point. But getting back to normal is going to require people to be confident that they can travel, go to movies and eat out without putting their families at risk.”
The economy responds better to downturns when fiscal and monetary policy act in the same direction, Barkin said, adding that public health policy is also important.
“This pandemic has hit everywhere in the world,” he said. “Some countries have handled it better than others. Those that handle it better have stronger economies.”