ELLIOTT D. POLLACK& Company
FOR IMMEDIATE RELEASE
October 5, 2020
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
There are two stories I want to discuss before we get to last week’s economic news. The first is from an article released by the prestigious Journal of the American Medical Association in their JAMA Network Open publication. Hold on to your hats for this one. The article stated that Americans sharply increased their alcohol intake last spring as many areas of the country shutdown due to the Coronavirus pandemic!! Who’d a thunk it? The stats are that frequency of alcohol consumption increased by 14% among adults over age 30 and that the increase was most evident in adults aged 30-59, women, and non-Hispanic Whites. The article also points out that “Alcohol consumption can have significant negative health consequences, so this information suggests another way that the pandemic may be affecting the physical and mental health of Americans.” Good to know.
But wait!! There’s more!!! In another article published in Reason entitled “Lockdowns intended to preserve our health are making us poorer and angrier”. That article, a summation of a Pew Research survey, went into the fact that the largest hit in terms of incomes were taken by those who could least afford it. Since most of the layoffs came in lower wage service industries like restaurants and bars, leisure and hospitality, some medical services, and retail trade just to mention the largest sectors hit, and only about half of those jobs have make it back, the pain is greatest in those who make less than median incomes. And thanks to Congress, the suffering has gotten worse since the CARES Act largely ended on August 1st.
Also, since the articles didn’t even get to the discussion of higher drug use, spousal and child abuse, depression, and deeper mental illness, the picture is much worse than these articles portray.
Combine these with the articles we discussed recently related to the way COVID-19 is being treated by the government and medical system and the picture is even more dismal. Those previously discussed articles point out the extraordinary number of life-years lost by those who could not or did not get their regular care and treatments in March and beyond relative to the number of life-years that were saved. The need to figure out a better way to deal with things until we get cheap, quick and effective testing, a vaccine and a therapeutic are evident.
That’s especially true since those who are under 55 and don’t have other major health issues are not at great risk of death. Yes. They could be spreaders to the older population. But, deaths are way down. Perhaps the government should allow the economy and schools to reopen for those who are safest and pay those 55 and over and the infirm to say home or away from work.
I am an economist. I am not a doctor. I don’t have the responsibilities of a Governor. And no matter what a politician or medical professional decides, that person will be second guessed. And hopefully this thing comes to an end soon. That being said, perhaps other options need to be considered. Even going into the regular flu season, continuing to reopen the economy has a lot of positive things going for it.
One other thing. This not a typical recession caused by overspending, too much debt and the Fed over tightening. Just the opposite is true. Prior to COVID-19 we were in the midst of the longest economic expansion in U.S. history. And the usual late in the cycle imbalances were few and far between.
This recession was caused by a government mandated closure of the economy. As a result, the recovery will look completely different. Those (probably 80% of the economy) who remained employed during the pandemic will find themselves flush with cash and will be in a spending mood at the end of this. Those who lost their jobs due to COVID-19 for the most part had below median incomes. They were aided by the CARES Act and then abandoned by Congress. These people will have a much tougher time at the end of this.
That being said, the economy as a whole should expand more rapidly than normal over the next few years. The third quarter should be up a lot from the second quarter. After that, the recovery will be slower but should still respectable.
Bottom line – ignore comparison with other more traditional business cycles. They don’t apply.
Last week’s economic data showed what most people already knew. The initial momentum in employment is slowing as the initial effects of some reopening of the economy runs through the system. The 661,000 jobs created in September was a good number even if it was somewhat below expectations (the range of expectations was very wide). And it’s a real sign of success that September had that much job growth given the number of Americans that were thrown under the bus by the political system’s inability to pass a follow up to the CARES Act. That is likely to magically change no later than a short time after the election. By the way, the unemployment rate declined in large part because the number of people in the labor force declined. More on that in the body of this MMQ.
Initial claims for unemployment insurance remain on a plateau, suggesting that the labor markets are having a more difficult time of it. Due to the end of the CARES Act on August 1st and the lesser amount of money that the President was able send out without Congress resulted in a slowdown in disposable personal income growth when compared to July. That being said, personal consumption expenditures grew modestly in August. Both measures of consumer confidence were up and the Conference Board’s measure was up a lot. Factory orders edged up in August after growing much more rapidly in July. The ISM manufacturing index was essentially flat. Construction spending continued to grow. And pending home sales were way up.
In Arizona, initial claims for unemployment insurance also remain on a plateau. And operations at Phoenix Sky Harbor International Airport were still down over 60% from a year ago. As bad as that sounds, it is much better than the national numbers that are down 70% from a year ago for the same period.
U.S. Snapshot:
Payrolls increased by 661,000 in September. This was below expectations but keep in mind that expectations had a large standard deviation given current events. The increase followed an upwardly revised 1,489,000 gain in August. Yes, the employment recovery is slowing. But, that was expected. The big surge after the initial reopening of the economy is over for now. There is likely to be another surge when cheap and reliable testing, a vaccine and more therapeutics come into play. But, given the lack of a follow up to the CARES Act that left millions hanging, the numbers aren’t bad. There is likely to be some form of follow up after the election. The big gainers this month were in leisure and hospitality (+318,000), retail trade (+142,400), health care and social assistance (+107,700), as well as professional and business services (+89,000). The big loser was government (-216,000) as a result of the census workers completing their jobs. The economy has now recovered more than half of the 22 million jobs lost between February and April. This is a good start but we have a long way to go.
The unemployment rate fell to 7.9% last month. This is down from a peak of 14.7% in April and 8.4% last month. The decline was mostly due to a contraction in the labor force. There are many reasons for this including classification errors. But, there are several other reasons. One major reason could be that the failure of many schools to reopen combined with difficulty getting child care has forced these responsibilities on people who otherwise would have been in the labor force. In addition, transportation issues (do you really want to get on a bus or subway in today’s world?), and people deciding to retire could also be factors.
Initial claims for unemployment remain on a plateau. While the number last week was modestly down from the week earlier, it is still 284% above a year ago.
August was the first month in which critical sources of CARES Act income support expired and the $600 weekly unemployment check all but faded away. As a result, nominal personal income fell by 2.7%. Personal income, due to the CARES Act, was still up 5.4% over a year ago. Personal consumption expenditures were up 1.0% for the month but down 1.9% from a year ago.
The Conference Board’s Consumer Confidence Index jumped to 101.8 in September from 86.3 in August. A year ago, it was 126.3. This gain was above expectations and was due to the expectations part of the index increasing from 86.6 to 104. Present conditions increased from 85.8 to 98.5.
The University of Michigan’s Consumer Sentiment Index also increased. It went from 74.1 in August to 80.4 in September. This is the highest level in 6 months.
Construction spending grew in August. Total construction spending was up 1.4% (annual rate) from July and 2.5% from a year ago. Private sector spending was up 1.9% for the month (annual rate) and 1.5% from a year ago.
Arizona Snapshot:
Initial claims for unemployment insurance in the state also remains on a plateau. The number of claims is up 177% over a year ago.
Enplanements at Sky Harbor International in Phoenix were down 61.5% from a year ago in August. In July, they were down 64.0% from a year ago. Deplanements were down 61.2% and 65.5% respectively. In total, activity was down 61.4% in August when compared to a year ago and 64.7% in July compared to a year ago. So, there is some slow improvement. Nationally, TSA checkpoints were down 71% for the month of August and down 66.7% for the week ending on October 3.
About EDPCo
Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.
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