Мишн акомплишед

Чего-то мне подсказывает, что так и будет, как в письме Carlyle внизу написано. Объявят победу и изолируют стариков, потому что ущерб от карантинных мер просто конский.

Date:               March 20, 2020

Re:                  Macroeconomic Update: When it’s So Bad it’s Good?

(1) Coming to Terms with the Scale of the Downturn

The near-term economic outlook is much clearer than it was a week ago. A confluence of decisions at the federal, state, and local levels has effectively shut down the U.S. economy.  Most of Europe finds itself in a similar situation.  Economic shutdowns come with staggering economic costs.  As long as these “blackout” policies remain in effect, GDP in advanced economies should contract at a -8% to -10% annualized rate, a drop in activity comparable to, but probably worse than, that observed in the darkest days of Q4-2008.

This is not a downside scenario; it’s a base case.  Some professional forecasters anticipate an eye-popping -24% drop in Q2-2020 GDP.[1]  To achieve a -4.5% rate of contraction, household spending on travel, tourism, live events, restaurants and lodging need only drop by -40%.  The travel bans, restaurant closures, and sports and event cancellations to-date virtually assure an outcome at least this bad.  A -20% decline in business and real estate investment (again, probably at the low range of what to expect) would subtract another -3.5% from GDP.  Declines in durable goods purchases (autos, furnishings, and electronics) and the knock-on effects from the drop in household income could easily lop off another -2% (or more) from GDP (Figure 1 in accompanying deck).

Available data from online reservations services suggest that the number of seated diners fell by -90% this week globally relative to the same period a year ago (Figure 2).  In the U.S., more than 20,000 retail establishments will be closed through the end of March and another 5,000 stores will be closed indefinitely, awaiting further guidance from local officials (Figure 3).  It is hard to overstate the devastation about to befall the small business sector.  Nearly 98% of U.S. businesses employ fewer than 100 workers.  These businesses account for one-third of all employment, nearly 30% of all wages paid (Figure 4), and very much depend on current receipts to meet payroll, rent, and other liabilities.

Official unemployment claims data suggest the U.S. economy is already on the cusp of recession (Figure 5). Job openings are contracting at a -1.5% annual rate (Figure 6), according to data from online professional networking services, and hiring will likely plummet in the weeks ahead as was observed in China and Italy at a similar point in their respective lockdowns (Figure 7).

(2) The Unintentionality of Government Action

There is a presumed intentionality to government actions.  Maybe government officials do not subject every decision to a rigorous cost-benefit analysis, but it seems reasonable to assume that they weigh the relative pros and cons of each decision.  But that’s not always the case, especially not in the midst of a crisis of this magnitude. 

It has become increasingly obvious (to us) that policymakers in the U.S. (and probably elsewhere) had virtually no sense of the economic cost of policies implemented to slow the growth of COVID-19 cases.  Last week, the emotional toll from the suffering in Italy steeled policymakers’ resolve to avoid a repeat of that scenario at all costs.  This week, policymakers discovered that the GDP arithmetic of the “blackout” can be as terrifying as the coronavirus infection rate.  When more U.S. policymakers learn – either from internal polling data or anecdotes – that their constituents are far more anxious about the economic and financial costs of the pandemic than its underlying health risks, they may rethink the prevention at all costs approach. 

While there are direct, or unavoidable, costs stemming from the rise in illness and its impact on the health care system, most of the economic costs of the pandemic come from policies to slow its spread: quarantines, travel bans, workplace closures, and social distancing mandates.  The efficacy of these policies is highly uncertain[2] and none has been evaluated relative to its economic cost. 

As the U.S. Senate and Treasury work on “Tranche Three” legislation to address the cash needs of small businesses and companies in impacted sectors (which account for 10% of the workforce; Figure 8), the cost of the “blackout” has become more salient – and pressing. 

After speaking with Congressional and Administration leaders, it seems clear that “Tranche Three” is intended to catalyze lending and fund flows in ways that will solidify asset values and consumer confidence in the short-term.  Federal policymakers now realize that costs accumulate quickly when a $21 trillion economy contracts at a -8% to -10% annual rate.  People in DC are thinking in terms of weeks not months; the political fundraisers scheduled for the late-spring, early summer district work period have not been cancelled.  In other words, elected officials expect a May 2020 that looks more like May 2019 than March 2020.

(3) The Rebound in China

Lifting the blackout may sound even better when U.S. policymakers review the data from China, where people have returned to work and economic activity returns to normal.  Our data suggest that China’s GDP contracted at a 15% annual rate in Q1-2020, but should register an impressive rebound in the second and third quarters.  Our proprietary data also reveal that retail stores are approaching normal operational levels (Figure 9), daily cargo volumes are rebounding (Figure 10), and discretionary spending slowly returns to more normal levels (Figure 11).  The rest of Asia-Pacific will likely follow suit in the weeks ahead.

(4) Time to Adopt the Aiken Strategy

The rebound in China must look quite alluring to U.S. and European policymakers forced to confront the cost of the blackout.  Current policies may be necessary to get the pandemic under control and allow for broader testing to assess the prevalence of the virus in the general population and more accurately measure hospitalization and mortality rates. But policymakers’ “sticker shock” at the hit to GDP and their increased sensitivity to their constituents’ worries about lost jobs, income, and net worth seems likely to change the political calculus in the weeks ahead, at least in the U.S.

President Trump recently described himself as a “wartime President” facing an invisible enemy.[3]  In 1966, barely a year into the Vietnam War, Senator George Aiken of Vermont famously suggested that the U.S. should simply “declare victory and get out.”  While his advice became a punchline, it may have been the best approach to a conflict quickly descending into quagmire.  By mid-April, policymakers may have no choice but to pursue a variant of Aiken’s strategy, hailing the success of the lockdown and turning to the more urgent task of getting the economy up and running.

In the U.S., this outcome depends on the complicity of state and local officials.  Thus far, mayors and governors have prioritized public health at every turn, assuming that the federal government will be there to pick up the pieces.  Future federal aid to states and localities may be constructed in ways that rewards widespread testing and the re-opening of stores and workplaces rather than their closure.

Jason Thomas







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