As the pandemic continues, New Yorkers remain more optimistic about the economy than the country as a whole, a surprising development for a state that includes the one-time epicenter of the COVID-19 outbreak, according to analysis by the American Institute of Economic Research. The analysis was presented in the most recent “NYCUA Monthly Economic Review,” which is provided as a benefit of membership to New York Credit Union Association member credit unions.
AIER noted that, in New York state, consumer confidence for future expectations was essentially unchanged in July, coming in at 128.7 points versus 128.5 points in June. For the country as a whole, confidence in the future fell to 97.5 points from 113.1 points in June.
Consumer confidence in the present situation remained weak in July in both New York and across the country. The index for New York did rise to 61.5 points in July from 46.9 points in June but the level remains well below the 157.4 points result from March. The pattern is similar to the U.S. measure where confidence in the present situation rose to 68.7 points in July from 63.2 points in June but remains well below the March level of 121.6 points.
The unemployment rate in New York state was at a high of 15.7% in June, above the 15.3% for April. The increase was driven by labor conditions in New York City where the unemployment rate has continued to rise, hitting 20.4% for June. Outside of New York City, the unemployment rate for New York State stands at 12.2%, up slightly from 12% in May, but below the 15.6% in April.
The collapse in labor conditions has had a significant impact on consumer finances. While a surge in savings was evident in aggregate income, spending, and savings data, for many consumers, making monthly mortgage payments became a problem. In New York, the percentage of mortgages that were delinquent jumped sharply in the second quarter, hitting 10.6%, the highest on record dating back to 1979. The jump was led by those mortgages that were 90 or more days late, where the percentage rose to 5.5% from 1.3% in the first quarter. The percentage of mortgages 60 to 90 days late rose to 2.5% from 0.8% in the prior quarter while the percentage of mortgages that were 30 days late was nearly unchanged at 2.6%.
The distortions to economic activity from widespread lockdowns have resulted in significant damage to the labor market, consumer finances, and consumer confidence. Many similar effects have hit the business sector, with a significant number of businesses, small and large, falling behind on rent, forcing some to file for bankruptcy.
AIER notes that nationwide, developments in three areas remain critical to the medium-term path for the economy:
- The progress of the outbreak as well as progress in developing an effective treatment and a vaccine have had mixed results over the past month. Record new daily cases and deaths have eased slightly but are a setback on the path to normalization. Furthermore, development of a vaccine is proceeding but that process is slow and is likely to take several more quarters.
- Responses by consumers, businesses and policymakers to the rapidly changing environment have been detrimental to economic activity. Consumer sentiment remains mixed while some businesses continue to lay off workers as others file for bankruptcy, and policymakers contemplate reimplementation of restrictions.
- Many areas of the economy benefited from the initial push to reopen, posting sharp gains following massive declines. However, the rebounds are starting to falter in some areas and the outlook across the economy remains highly uncertain.
Overall, the U.S. economic outlook is “tenuous and highly uncertain at best,” according to the AIER analysis. The continued spread of COVID-19 in many parts of the country has delayed an economic recovery. While some areas (most notably housing) have shown some relatively strong gains over the last few months, a full economic recovery is heavily dependent on progress towards slowing the spread of the outbreak, developing an effective treatment and vaccine and minimizing permanent damage to consumers and businesses. All of those factors suggest complete recovery is likely a long way off.