Monday, December 21, 2020

Recovery Slows As Pandemic Spreads

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This Chicago Federal Reserve graph of national activity starkly portrays the present state of the US economy. The multi-colored bars represent deviations from the historical growth average, which is the zero line on graph. It is still barely positive though down sharply from May and June when the business lockdown ended.

“Led by slower growth in employment- and production-related indicators, the Chicago Fed National Activity Index (CFNAI) declined to +0.27 in November from +1.01 in October. Three of the four broad categories of indicators used to construct the index (production and income, employment, sales and inventories) made positive contributions in November, while personal consumption and housing declined slightly, but all four categories decreased from October. The index’s three-month moving average, CFNAI-MA3, decreased to +0.56 in November from +0.85 in October.”


This is because successive surges in infections have had consumers saving more and spending less, while manufacturing continues to chug along. The pandemic is just not manageable at the current infections rate with more than 200,000 per day (blue line in graph) now testing positive and more than 100,000 per day (red line) being hospitalized with the virus.

It is easy to see the inverse correlation in these graphs. As total infections in cases per day rise (blue line) economic activity in the Chicago Fed bar graph declines.

There is better news coming as more than 144,000 vaccinations have already been administered in 21 states, according to the COVID Tracking Project.

MarketWatch reports that new daily cases of COVID-19 fell to 179,801 on Sunday from 193,947 on Saturday, and down from 251,447 on Friday, according to data provided by the New York Times. The daily death toll was 1,422 on Sunday, down from 2,628 on Saturday and from 2,815 on Friday.

And hospitalizations dropped to 113,630 on Sunday from 113,929 on Saturday and 113,955 on Friday, according to the COVID Tracking Project. That 3-day streak of declines snapped a 12-day streak of record hospitalizations.

But the Christmas holidays have just begun with many more traveling to family and vacation destinations, which will cause another surge in the new year and keep most consumers at home for a longer period.

In looking back at the history of the Spanish flu, there was another infection surge in the spring of 1919, even as the warm weather returned. It actually took several more years for that economy to stutter back to life.

And it will in fact take much more federal aid than the just passed $900 billion coronavirus relief package to bring back any meaningful recovery for most Americans because so many lost jobs; something the incoming Biden administration will have to tackle.

Harlan Green © 2020

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