The Economy Under COVID-19: Notes From the Trenches

There are currently two crises underway simultaneously. The advance of the novel coronavirus is taking a terrible toll in terms of physical and emotional well-being. At the same time, job losses resulting from ‘social distancing’ are sending the economy into a tailspin. To fight on both fronts, governments are advancing rescue packages of never-seen-before dimensions. Every day, the tremendous number of factors in play reconfigure in a new way. These ‘from the trenches’ notes attempt to shed some light along a murky pathway.

Do you remember the Greek financial crisis and how, for years, there was the danger that Greece’s enormous debt would destroy that country and, domino-like, cause the fall of several other nations, as well as some banks? Within the next couple of years, there will be a slew of countries mirroring Greece’s earlier plight.

In poorer countries without the clout of the Federal Reserve, the European central bank or only a few other major central banks, running up debt and printing money to ease the pain of ‘social distancing’ will carry a cost that will be nigh on impossible to bear. Included in such a list will be several of OPEC’s less prominent members (with Saudi Arabia being most prominent), such as Algeria, Libya, Congo and Ecuador (Venezuela’s already down for the count). They’re being pummeled by a double whammy, the second of which is an extraordinarily low price for the main product they sell and export, oil.

By the way, it’s all very well that central banks have lowered policy-setting or ‘guideline’ interest rates, but commercial banks, when setting their own rates for mortgages and lending, must factor in the risk of default. And who would be so bold as to argue that the need for such mitigation hasn’t escalated mightily?

U.S. consumer confidence, as measured by the University of Michigan, took a beating in April. In the latest month, the ‘sentiment’ index ‒ which has a base of December 1966 = 100.0 ‒ fell by 18 points, from 89.1 to 71.0, the sharpest single-period descent in history. The two-month decline was 30.0 points. The survey was conducted from March 25th through April 7th, when layoffs were first beginning to skyrocket.

Short of a vaccine, the five words that might eventually provide people with enough confidence to return to the workplace are ‘rigorous testing, tracking and isolating’.

My wife and I are now shopping for groceries during seniors’ hours from 7 to 9 in the morning. Even at that time, there can be line-ups. Standing there, wearing a mask and gloves, and six feet away from the next cart in back and in front, I’m struck by how we all look like nothing so much as a collection of cat burglars from back in the day.

Read the previous article here: The Economy Under COVID-19: Notes from the Trenches – April 16, 2020.

Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985. Links to his numerous articles are featured on Twitter @ConstructConnx, which has 50,000 followers.