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.

Economists work under a disadvantage. Most of their signposts lie half a mile behind them. Readings on GDP, jobs, inflation, retail sales and foreign trade are quarterly or monthly. Data release schedules dictate that the latest numbers report on what has happened, not what is happening. In the current virus-induced crisis, events have turned negative with incredible rapidity. The first indications of extraordinary trouble came in daily interest rates and daily stock market quotations, both of which plummeted.

Next in line has been the weekly U.S. ‘initial jobless claims’ number. For the week ending March 14, it rose by a substantial +70,000. In retrospect, that was nothing. For the latest week, ending March 21, it soared by +3.0 million. When its current level of 3.3 million is placed in a graph, it turns all previous readings into a flat horizontal line way down below near the x-axis.

It was a big deal when initial jobless claims gradually receded from 670,000 in the last recession to near 200,000 only a short while ago. 3.3 million is five times the previous peak and nearly 17 times the recent trough. It’s an increase so massive, it’s impossible to fully understand the significance. It’s as if all the workers normally employed in Washington State or Massachusetts were laid off all at once.

Three words are particularly pertinent with respect to recovery ‒ ‘containment’, ‘stratification’ and ‘antibodies’. Once the contagion is contained, either through social distancing or running its course, a restoration of some measure of normalcy will proceed automatically. ‘Stratification’ refers to who can return to work soonest, and that’s where antibodies become important. Younger people have more resistance to the lethal aspects of COVID-19. But there are also individuals who’ve lived through the illness or who contacted the strain, but never experienced many of the symptoms. They’ve built up antibodies. They qualify to go freely about their regular business.

Finally, as some commentators have been pointing out, a side effect of the economic shutdown has been noticeably less pollution. Among all nations, Italy has imposed one of the most severe lockdowns. The water in the canals of Venice is said to be cleaner and clearer than it has been in centuries.

Read the previous article here: The Economy Under COVID-19: Notes from the Trenches – March 26, 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.