Slow Awakening From COVID-19 Lockdowns

April was a peak for China’s coronavirus lockdowns, not just in the US, but also worldwide. With lockdowns somewhat easing in May, a limited rebound is already underway. However. it will be at least another week or two before we have any idea how our recovery is going. For now, just about every data series offers a view of the abyss. What we do know about the coming recovery suggests it will be a hard climb out of where we are today (especially while 15 “blue” states remain in somewhat politically motivated partial lockdowns).

The jobs report from last Friday (May 8) likely understated job losses, but still shattered records. More people lost jobs (at least temporarily) in April than during any of the recessions over the past 50 years. The Bureau of Labor Statistics reported 20,500k job losses; and, the unemployment rate rose to 14.7% (for April). Total job reductions were likely larger; but, the Bureau of Labor Statistics was hobbled by methodology, lockdowns (all their processing centers were closed), and no means of tracking all real-time job reductions due to business closures. The employment report was the worst on record, as expected, but it still takes your breath away.

As you might imagine, collecting data was not easy under a national pandemic lockdown. Huge job reductions, combined with a post-Great Depression high in the unemployment rate, may even understate the full extent of the damage in the labor market during April. The BLS made a huge effort, under trying circumstances, to catalog the damage. But, results likely fell short.

Statistics from JPMorgan were showing half of small businesses only had two weeks cash on hand before the lockdown. Apparently ignoring incoming guaranteed government PPP loans, it was inferred that many were not prepared for this challenge. Credit card data suggest a third of these businesses are at least temporarily closed. Bloomberg News notes a new survey (from the Society for Human Resource Management) which found 52% of small business owners fear that they may be out of business in six months. Another 14% are uncertain. That leaves just 34% of small businesses very confident they will survive the year. Among businesses that do survive 2020, some could return with smaller operations.

Recessions end in the month when GDP is at its lowest. As parts of our American economy reopen in May, and assuming still primarily closed state’s businesses don’t decline enough to offset the open states results, April should have been the low point in the USA, as well as in the free world. As a result, this very abrupt recession should be technically over right now. After all it is May, with 31 states previously allowing reopening of many businesses, and others now starting to do so in a more limited way. Several additional blue state Governors are allowing factory workers to return to work (with limitations) on May 11^th. A greater percentage of Governors have also been relaxing limitations on other aspects of personal freedoms (related to religion and American’s personal lives)!

Hopefully this ongoing positive momentum (toward historic economic and personal American freedoms) will continue, allowing all Americans, in all 50 states, to share in the pride of rebuilding the country we love! Together we can make that happen (assuming recent trends toward opening the country continue)!

However, it does not feel like it’s close to being over; and, for many individuals the worst may be yet to come. While 78% of people furloughed in March believe their jobs will be there when the lockdowns end, sources see some temporary layoffs starting to turn permanent.

Early recoveries (from any recession) can be painful, fraught with setbacks, potential double dips, and (most importantly) further income losses. This recovery could be particularly slow, especially in the early months (while so many states remain partially locked down). A colleague of mine recently wrote: “If an economist tells you the recession is over, and the unemployment rate is still in double-digits, don’t buy that idea”. Many on Wall Street expect this recovery will take three years. (It probably is difficult to be optimistic when you live and work in the state which was “hit” the hardest by the Wuhan coronavirus.)

While most of my Wall Street colleagues also feel somewhat better times will return before the end of this year, that prediction was easy. However, they don’t expect everyone will feel better just because this COVID-19 recession is technically over. Stay Positive My Friends!