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.

A double-digit percentage decline in Q2 GDP, a huge jump in unemployment insurance claims and a $2 trillion stimulus package – numbers such as these are going to play havoc with multi-equation econometric models going forward.

There’s much commentary in the media that the economy will quickly bounce back due to the ‘pent-up’ demand that is accumulating. While it’s true that on the other side of the ‘slump’, there may be large % gains in GDP, they will arise mainly from a low denominator in the calculation (i.e., a low base from which to grow.) Yes, people will rejoice in being able to return to the theater and go out for a meal. Previous recessions have shown, however, that with so many people losing their jobs, a great deal of paying down debt and attempts to build or re-build nest eggs will be taking precedence over consumer spending (70% of GDP).

Longer term, the stimulus package will be inflationary. Tariffs are inflationary. It’s time to abandon, for a long while, any further talk of taking aggressive action on the foreign trade front. A likely pandemic-inspired move towards de-globalization of supply chains will do the trick on its own.

If you’re wondering about possible backlash against aspects of the stimulus package, you might want to check out ‘#notdyingforWallStreet’ on social media.

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.