The US economy remains under a fog of uncertainty amid the ongoing Covid-19 crisis, and healing the labor market may take some time, according to Lael Brainard, a member of the US Federal Reserve System’s Board of Governors.
“A thick fog of uncertainty still surrounds us, and downside risks predominate,” Brainard said. “The recovery is likely to face headwinds even if the downside risks do not materialize, and a second wave would magnify that challenge.”
Brainard spoke during a webinar Tuesday hosted by the National Association for Business Economics.
The US economy bottomed out in April and rebounded in May and June, she said. However, the earlier-than-anticipated resumption in activity has been accompanied by a sharp increase in the virus spread in many areas.
“Even if the virus spread flattens, the recovery is likely to face headwinds from diminished activity and costly adjustments in some sectors, along with impaired incomes among many consumers and businesses,” Brainard said.
Labor market improvement started earlier and has been stronger than anticipated, she said. Over May and June, payroll employment increased by 7.5 million.
The gains were concentrated among workers who were on temporary layoff. And the gains were likely driven by an earlier-than-expected rollback of coronavirus-related restrictions and the increases were especially notable in the leisure and hospitality sector.
“It is unclear whether the rapid pace of labor market recovery will be sustained going forward, and risks are to the downside,” Brainard said. “The pace of improvement may slow if a large portion of the easiest gains from the lifting of mandated closures and easing of capacity constraints has already occurred.”
In addition, some states are again imposing restrictions amid spikes in Covid-19 and this could cause further economic difficulty.
Brainard also noted Covid-19 job losses are disproportionately impacting African American and Hispanic workers.