Can the economy avoid a double dip?

The smartest insight and analysis, from all perspectives, rounded up from around the web:

Rising infection rates across the country have given a "healthy dose of reality" to economic optimists, said Matt Egan at CNN. Investors have become alarmed about the precariousness of the recovery as a second lockdown becomes a worrisome summer possibility. Following weeks of rising stocks — enough to bring the S&P 500 back to pre-pandemic levels — the Dow plunged 1,862 points in one day last week, its biggest sell-off since March. The dip continued after the Federal Reserve issued a grave assessment of the long-term economic outlook, throwing a truckload of cold water on hopes of a V-shaped bounce, and projecting a slow, yearslong recovery. The markets had "surged even in the face of mostly dreadful news" on the assumption that most investors had already priced in the coronavirus' impact. But recent reactions suggest that "Wall Street is unprepared for a potential second wave."

Resurgent infection does mean the pace of recovery is "clouded by uncertainty," said Greg Ip at The Wall Street Journal, but "an L-shaped recovery, in which activity stays depressed, now looks remote." Economic activity is on the rise, with retail sales recovering 17.7 percent in May. Private economists have grown more optimistic than the Federal Reserve. "While the overall recovery may not end up a V, it may also be less feeble than many had feared." And even if a second wave develops, it might not affect the economy in the same way, because "states may be deeply reluctant to lock down again."

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Those who want to avoid the "kill switch" are right, said Zachary Karabell at Politico Magazine. It's clear the first shutdown wasn't as simple as an "off" switch that can be easily flicked back. It was "a total, sudden power cut that leaves the machinery defunct." Policy leaders need to form a better road map for responding to potential future waves. The goal should be "to isolate outbreaks with targeted shutdowns rather than shut down things for everyone." Unfortunately, considering the "ineptitude of the federal response," solutions will probably again be hatched state by state.

So far, small businesses have hung on, said Michael Strain at Bloomberg. Nearly 10 percent of businesses with fewer than 500 employees say they are now expanding, compared with 4.2 percent in April. Commercial bankruptcy filings have actually fallen, though they will likely rise in the coming months. "Businesses are doing better faster than many would have thought, but they are climbing out of a deep hole." They may emerge from it right at the edge of a cliff, said Tom Gara at BuzzFeed News​. An "extraordinary government relief effort" has kept the economy afloat. But expanded unemployment benefits will expire on July 31. A law barring evictions in properties backed by federal mortgages expires July 25. And pauses on student loans and many mortgages end in October. Republicans "don't seem to be in much of a hurry" to negotiate extending relief. Without such aid, "things are going to get a lot worse."

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.