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Economy is ‘schizophrenic’ as coronavirus surges: Moody’s chief economist

Seana Smith
·3-min read

The U.S. economic recovery is losing momentum as the pandemic escalates, forcing companies to readjust hiring plans.

Job growth slowed for the fifth month in a row in November with the U.S. economy adding back the smallest number of jobs in seven months.

A slowdown in the labor market is tempering the economic rebound, according to Moody’s Analytics Chief Economist Mark Zandi, as a surge in coronavirus cases is expected to trigger setbacks over the next couple of months.

“It's a bit schizophrenic. I expect the economy to struggle more in the near term,” Zandi told Yahoo Finance Live. “Between now and February or March, I think it's going to be pretty uncomfortable... I suspect we could see job losses in December and into January.”

The slowdown in the economy is starting to appear as states implement new restrictions in an effort to control the spread of the pandemic. This week, California Governor Gavin Newsom announced regional stay-at-home orders in areas where available ICU beds dropped below 15% capacity. In Delaware, Governor John Carney issued a stay-at-home advisory, asking residents to avoid indoor gatherings with those outside of their household.

Photo by: gotpap/STAR MAX/IPx 2020 12/3/20 Open Up L.A. Protest in Los Angeles, CA. Rising cases of the Coronavirus has led to tougher restrictions on business.
Photo by: gotpap/STAR MAX/IPx 2020 12/3/20 Open Up L.A. Protest in Los Angeles, CA. Rising cases of the Coronavirus has led to tougher restrictions on business.

A surge in infections and hospitalizations has put more pressure on Congress for additional fiscal support. But as lawmakers fail to reach a compromise, Americans may have to wait until after President-elect Joe Biden is inaugurated in January for more relief.

“It just feels like the economy is going to struggle here, but we’ve got some really good news on the vaccine front if in fact everything sticks to script there,” said Zandi. “On top of that, it feels like we're getting better news out of Washington. We should get a package — if not in December then in January or February — so by spring I think economic growth should kick into a higher gear.”

In terms of what’s going to drive economic growth in 2021, Zandi expects pent-up demand for activities like dining out and travel.

“If the pandemic sticks to script, the unleashing of pent-up demand and inventory rebuilding should ensure that real GDP fully recovers what it lost in the pandemic by the third quarter of 2021, nearly two years after its previous peak,” Zandi wrote in a recent note.

While GDP is predicted to recover in the second half of next year, the labor market’s recovery will take much longer, as 10.7 million Americans remain out of work.

“The jobs recovery from the pandemic will be much slower than that of GDP. It is expected to take until early 2024 — nearly four years after the pandemic struck for the economy to regain the 22 million jobs lost in March and April 2020,” he said.

Seana Smith anchors Yahoo Finance Live’s 3-5 pm ET program. Follow her on Twitter @SeanaNSmith