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Apr 29 2020

The Next Depression

Well, first of all, we’ve lost over 26 Million Jobs in 4 weeks, highest levels since the Great Depression (and indeed faster). The only reason it isn’t higher is that States can’t keep up with the filings.

Inevitably GDP (which I’ll point out is not a good indicator of actual Economic performance but it will do as a surrogate) has declined by 5% during the First Quarter alone with conventional projections of a 30% decline in the Second.

Now Republicans are pinning their hopes on a speedy recovery in the Third Quarter with the ‘feeling good about the trend’ momentum behind them. That is not going to happen. If there is any justice they will be properly punished by the Electorate.

I actually spend a fair amount of my social time going to movies, eating out (I cook too, don’t judge me), and traveling and basically none of these activities are things I feel comfortable with at the moment. Big tour of P.E.I. this year (best Mussels in the World) already canceled and if I didn’t feel compelled to stop by North Lake and make sure it hasn’t burned to the ground I probably wouldn’t go. Shame really because Gas prices are so low.

Speaking of, if you’re counting on a quick pick up in Oil think again. Based on the enormous decline in demand Brent will be hard put to maintain a valuation of $20 per Barrel and WTI will trade at a discount from that.

The Markets appear to be levitating today based on a single trial of remdesivir but even Gilead might not find it as lucrative as they thought because the shorter the course of treatment the better the results.

Which are… not all that. 50% of the patients showed some improvement. I suspect until and unless there is a vaccine a year, year and a half from now, Doctors will be reduced to treating the symptoms (which they’re already getting better at) just like they do with Cholera and help you live through it. Bad news is there is no indication yet of immunity.

So things are not going to get a great deal better than they are right now for a very long time. More people will die of course because of Evil, Graft, and Idiocy (Bleach? Really? Who even thinks about drinking Bleach?). They could get a good deal worse and probably will in some places, it is waaay too soon and there are not nearly enough tests and “contact tracing”? You amuse me (also 70% of people won’t use the Google/Apple Apps and neither would I so forget your quick tech fix).

Do I sound gloomy? I was talking about an Economic Depression.

Worst Economy in a Decade. What’s Next? ‘Worst in Our Lifetime.’
By Ben Casselman, The New York Times
April 29, 2020

U.S. gross domestic product, the broadest measure of goods and services produced in the economy, fell at a 4.8 percent annual rate in the first quarter of the year, the Commerce Department said Wednesday. That is the first decline since 2014, and the worst quarterly contraction since 2008, when the country was in a deep recession.

There is much worse to come. Widespread layoffs and business closings didn’t hit until late March in most of the country. Economists expect figures from the current quarter, which will capture the shutdown’s impact more fully, to show that G.D.P. contracted at an annual rate of 30 percent or more, a scale not seen since the Great Depression.

“They’re going to be the worst in our lifetime,” Dan North, chief economist for the credit insurance company Euler Hermes North America, said of the second-quarter figures. “They’re going to be the worst in the post-World War II era.”

The Congressional Budget Office last week released projections indicating that the economy will begin growing again in the second half of the year but that the G.D.P. won’t return to its pre-pandemic level until 2022 at the earliest.

The estimates issued on Wednesday are preliminary and based on incomplete data, particularly for March. The speed of the economic shift means that revisions could be particularly large, and some economists expect final figures, due later this spring, to show an even bigger decline.

But the data, however incomplete, hinted at the breadth of the damage. Consumer spending, the bedrock of the decade-long economic expansion, fell at a 7.6 percent rate. Business investment, which had already been struggling in part because of the trade war, fell for the fourth straight quarter. Imports and exports both declined sharply as the pandemic brought global trade to a near standstill.

The pandemic has hit the service sector particularly hard: Restaurants are closed, flights are nearly empty, and stadiums have sat unused for weeks. Spending on services fell at a 10.2 percent rate in the first quarter, and spending at restaurants and hotels was down nearly 30 percent on an annual basis. Consumers even spent less on health care, as they put off appointments and canceled elective procedures.

Spending on goods fell at a milder 1.3 percent rate, helped by a surge in spending on groceries as Americans stocked up for the shutdown. But spending on cars plunged at a 33.2 percent rate.

That pattern could hurt the recovery. Consumers who put off buying goods, especially long-lasting items like cars and washing machines, might simply defer those purchases, not skip them. But they are less likely to make up for spending on services the same way — no matter how many haircuts someone misses in quarantine, it takes only one to get back to normal.

When the new coronavirus began to spread in the United States this year, many economists expected a “V-shaped” recovery, with a sharp downturn followed by an equally swift rebound. But those projections were mostly predicated on a short pause in activity that could be quickly reversed. As lockdowns have stretched into a second month — and with disruptions likely to continue for weeks or months in many states — those hopes have faded.

With each month of unpaid bills and rock-bottom sales, more businesses will go bankrupt or decide not to reopen. More workers will drift away from their employers, turning temporary layoffs into permanent job losses. More loans will lapse into delinquency, endangering banks and the broader financial system.

But economists and epidemiologists say moving too quickly threatens both public health and economic growth. The United States is not performing nearly as many coronavirus tests as health officials say are necessary to detect and contain new outbreaks. Until that happens, a robust economic rebound won’t be possible, said Karen Dynan, a Harvard economist who was a Treasury official in the Obama administration.

“You could lift the restrictions tomorrow and the economy would still not come back if people don’t feel safe to go out,” she said. As a result, “measures that we normally consider to be public health measures are in this case a really important component of the economic policy response.”

Concern about the public health situation is complicating the work of economic forecasters and policymakers as well. The usual tools for stimulating consumer spending and business investment don’t help much when businesses can’t operate and consumers can’t leave the house. Standard economic models can’t predict when a vaccine will become available, or when people will feel comfortable going back to work.

“If we could be told right now with confidence that on X date, whenever X date is, the virus will be gone — if we knew that now, I think businesses could plan accordingly and could make the right calculations,” said Ms. Sinclair, the economist. “The problem is that we don’t have that certainty, and there’s no way to have that certainty. There’s no way to promise when we can restart, and that uncertainty is what’s killing our ability to do good economic policy.”