Thursday, July 30, 2020

When Will Growth Return?

Financial FAQs


The headline decline in Q2 GDP growth only touches the surface of what economic growth to expect this fall and winter. The drop of minus -32.9 percent was inevitable with the pandemic lockdowns, but not the severity of any recovery.

Q2 plunged this much because consumer spending plunged -35 percent during this period. And since consumers power some 70 percent of economic activity—i.e., GDP growth—it will only recover when consumers feel safe enough venture out of their rabbit holes.

And when can that happen with new record COVID-19 death rates in California, Idaho, Florida, N. Carolina, Texas and Arizona? The infection and death rate curves are still rising, rather than even plateauing.

As NY Times columnist and pandemic authority Don McNeil, Jr. put it today, “One or several vaccines may be available by year’s end…But by then the virus may have in its grip virtually every village and city on the globe.”

And so consumers will not be happy, but begin to hunker down again, even without new stay-in-home mandates. It’s just too dangerous out there when there’s not even a national mandate to wear masks, much less keeping safe distances, or getting quick testing results, as I said yesterday.

That is why consumer confidence fell to 92.6 this month from a revised 98.3 in June, the Conference Board said Tuesday, which is a major indicator of future consumer behavior.

Initial jobless claims also rose last week to 1.43 million, when it should be declining. Continuing claims of those receiving benefits for more than one week now total 17 million. It is not a good sign for any fall or winter revival.

The saddest fact of this pandemic is that science doesn’t lie, but politicians do about the efficacy of mask-wearing and social-isolation, in particular. Why would they? Even asking the question flies in the face of common sense. Infected populations with such a highly transmittable disease facing possible death or even lifelong debilitation from COVID-19, will not be in any hurry to resume normal activities.

It’s as simple as that.

Harlan Green © 2020

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Thursday, July 23, 2020

Our 'Whac-A-Mole' Recovery

Financial FAQs

Initial jobless claim for the week ending were slightly up at 1,416,000 for the week ending July 18, which means that the reversal of business openings as COVID-19 infection rates soar again have flattened the wrong curve—applications for unemployment insurance are no longer declining.

They are remaining at a level that creates a very prolonged U-shape at the bottom of any curve for GDP growth. It almost looks like an L-shape, in fact, which means stagnant growth if we want to use letters to describe the recovery rate.

It’s becoming more and more like the ‘Whac-A-Mole” game, because when we knock down the infection rate in one state, it pops up in another.

The first Q2 estimate of GDP growth comes out July 30, and GDP could fall as much as minus -20 percent, according to most estimates. But just when we would expect growth to resume in the July-September quarter, COVID-19 infections have surged at an alarming rate.

Former FDA Commissioner Scott Gottlieb told MSNBC that testing demand will only continue to rise heading into the flu season, which means infection rates will plateau rather than fall, as well.
“If you look what’s happening in Southern California right now, Texas, Arizona, Florida — there are indications perhaps that the epidemics in those states are starting to peak. It’s likely to be a long plateau (also, L-shaped?). It’s not going to be like the New York experience, where there was a sharp up but a sharp down — granted, excess mortality, excess death and disease along the way.”
Perhaps the easiest way to understand the relationship between COVID-19 and economic growth, hence jobs, is to look at both letter-shaped curves—as long as they are ‘flattened’; the stagnation in economic growth is mirroring the stagnation in infection rates, the slower the economic recovery.
“But they (New York) came down pretty quickly from their epidemic,” continued Gottlieb. “These are likely to be more extended, but, even when these states start to peak — if you look at the data, it looks like Georgia is getting hot, Ohio is getting hot, Missouri has an epidemic under way, Tennessee, Montana — so even as certain states start to peak and maybe have a reduction, other states are heating up.”
Maybe we should call this the ‘Whac-A-Mole’ recovery after the Japanese game of same name. The faster we can ‘whack’ down the virus outbreaks in individual states and regions with a coordinated plan of testing, contact-tracing and isolation of infections, the faster will be the economic recovery.

Harlan Green © 2020

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Thursday, July 16, 2020

What ‘V’– Shaped Recovery?

Popular Economics Weekly

It’s becoming obvious to me there will be no ‘V’ shaped economic recovery with positive GDP growth resuming in the fall and winter quarters, after the plunges we are seeing in Q1 and projected Q2 growth. The actual Q2 GDP number is not out until the end of July, but economists are saying negative Q2 growth could be somewhere around minus -20 percent.

Why? There are already reversals of business openings as COVID-19 infections soar again in some 35 states. In fact, we won’t really know what GDP growth might be in the fall because the experts don’t know when infection and even death rates will begin to decline again.

That must be why today’s initial jobless claims release shows another 1.3 million jobless claims, same as last week, so new claims for unemployment continue to pour into overwhelmed state employment offices, which means many of the still 15 million unemployed haven’t even begun to receive unemployment insurance more than one month after the $3 trillion CARES Act was passed.

An even better barometer of the jobs market is the continuing claims number, which is 17 million receiving unemployment compensation from the states alone, and with the total of all people receiving benefits through all state and federal programs has hovered near 30 million from the first week of May to late June. These are known as continuing jobless claims. They rose again in the week ended June 20 to 32.9 million.

It is not good news that so many are out of work. The monthly employment report painted a slightly different picture. It showed that the economy regained 7.5 million jobs in May and June, partially recovering some of the more-than 22 million jobs lost during the first two months of the pandemic. A variety of other economic indicators also suggest that more people have gone back to work.

So who really knows what job and economic growth will look like in the fall and winter?

The non-partisan Congressional Budget Office that does projections for congress is also more optimistic in its latest projections. CBO projects that if current laws governing federal taxes and spending generally remain in place, the economy will grow rapidly during the third quarter of this year. So the CBO is saying there could be a ‘V’-shaped recovery!

  • · Real (inflation-adjusted) gross domestic product (GDP) is expected to grow at a 12.4 percent annual rate in the second half of 2020 and to recover to its prepandemic level by the middle of 2022.
  • · The unemployment rate is projected to peak at over 14 percent in the third quarter of this year and then to fall quickly as output increases in the second half of 2020 and throughout 2021.
“Following that initial rapid recovery,” said the CBO, “the economy continues to expand in CBO’s projections, but it does so at a more moderate rate that is similar to the pace of expansion over the past decade.”
They actually mean growth will return to the long-term 2 percent growth rate that has prevailed since the end of the Great Recession, and that won’t happen until at least 2022.
But what about the duration of the pandemic when the US can’t get its united states’ effort together, which the rest of the developed world seems to be doing?

These are not great numbers, unless more ways are found to either boost labor productivity, or US population growth. Our population growth is low because of the declining birth rate and immigration restrictions. Yet neither of them will pick up until this pandemic is really over, and Americans can again come out of their shelters.

Harlan Green © 2020

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