MESSAGE
| DATE | 2020-08-22 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] The economy is not coming back... suprise.
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wsj.com
Opinion | Lifting Lockdowns Won’t Fully Restore the Economy
Scott Gottlieb and Michael R. Strain
6-7 minutes
A restaurant in Miami Beach, Fla., July 15.
Photo: chandan khanna/Agence France-Presse/Getty Images
America is largely open for business, but consumers are still staying
home. As long as Covid-19 is an epidemic, many will be cautious, and the
economy will be weak. There is a direct link between the choices we make
on issues such as wearing masks and the risk of a double-dip recession.
Take Florida, where nonessential businesses have been allowed to open
with reduced capacity. Bans on large gatherings have been lifted and
restaurants can allow patrons inside with limits. Bans on large
gatherings have been lifted or relaxed in 36 states. Every state has
restarted at least some nonessential businesses. By our count, bars are
open in 33 states.
Consumers are limiting their activities anyway, and they may be right to
do so. The Centers for Disease Control and Prevention estimates that 45%
of Americans have one or more conditions that heighten the risk of a bad
Covid outcome. There has been debate over whether lockdown orders or
concerns about catching the virus is the primary driver of the economic
downturn. Both contributed, but consumer worries may now be the more
prominent factor in many parts of the economy. Supporting recovery, and
minimizing the risk of a double-dip recession, requires controlling the
epidemic.
The labor market fell off a cliff in March. In the week ending March 14,
initial claims for unemployment insurance were at 282,000. The next
week, there were 3.3 million new claims, shattering the previous record
of 695,000 in 1982. The week after that, there were 6.9 million new
claims. Because claims increased across all states and industries, some
economists think most of the disruption in March was driven chiefly by
nongovernmental reactions to the virus, not by lockdown orders.
Online job-vacancy postings collapsed in March as well, declining by 30%
relative to the beginning of 2020. Economists Lisa B. Kahn, Fabian
Lange, and David Wiczer concluded in an April paper that labor demand
retreated in a similar fashion across states, regardless of when a state
imposed stay-at-home orders or how hard it was hit by the virus.
Much of the job decline was in services industries. In many cases, it
wasn’t closed schools that kept parents from going to work. It was
consumers avoiding the retail and hospitality settings where people worked.
A team of economists including Kosali I. Simon at Indiana University
studied the labor market from mid-March to mid-April and found that
employment fell by 1.7 percentage points for every additional 10 days
that a state imposed lockdown orders. They estimate that 60% of the
employment decline between January and April was caused by policy. But
the remaining 40% was likely driven by concern about the virus.
The U.S. is substantially more open than it was in April, but the
economy is still very weak. Economists at Goldman Sachs estimate that
consumer spending is at 94% of its previrus level. That’s progress—but
an economy with a 6-point hole in consumer spending is devastated.
The lockdowns are largely over, and consumers are still nervous and
skipping activities they view as optional or too risky. The Goldman
Sachs analysis finds that the personal-care industry—for example, spas
and nail salons—is still at less than half its previrus level of
activity. Transportation, including airlines, is at less than one-third
of where it was before the virus.
Lockdown orders kept many people from dining out, but people now debate
whether to stay in a hotel or visit the dentist based on their own
concerns of getting sick. Even if risk tolerance is increasing, the
economy is likely to have a recession-level output gap driven by
reasonable fears of Covid.
States are unlikely to reimpose lockdowns no matter how widely the virus
spreads, and the Trump administration won’t turn to a “stay at home”
strategy ahead of the election. The fate of the economy this fall and
winter depends on controlling spread. That will turn on prudence in
personal interactions, more widespread mask wearing, and extensive
testing and isolation to keep the virus under control. If we fail in
these efforts, we’re going to face a lot of tragic death and disease
from Covid, the recovery will slow, and the economy could tip back into
recession.
Dr. Gottlieb is a resident fellow at the American Enterprise Institute
and was commissioner of the Food and Drug Administration, 2017-19. He
serves on the boards of health-care companies involved in the Covid-19
response and is a partner at the venture-capital firm New Enterprise
Associates. Mr. Strain is director of economic policy studies at AEI.
Wonder Land: Coronavirus lesson #1: The U.S. is willing to shut down for
three months, but that’s about it. Images: Getty/Twitter/Lawler50/via
Reuters Composite: Mark Kelly
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved.
--
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