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Strategic Global Intelligence Brief for April 13, 2020

By Chris Kuehl, Ph.D., NACM Economist

Short Items of Interest—US Economy

Three Kinds of Job Loss
There has been a loss of some 16 million jobs. That number may be a bit understated given that not every layoff is tracked and not every person who loses their job is going to be applying for unemployment. Within that 16 million plus there are three basic categories. The first and likely the largest category (perhaps as much as 70%) are people who have essentially been furloughed. These are the jobs that will come back as soon as the lockdown ends as the employers can't function without them. The second category is made up of people who worked for a business that will not survive the lockdown; and there are more of these every day. Most of these are smaller companies that were in the restaurant business or other parts of the service sector. This may be as much as 15% of the total. The third category will be attrition layoffs—people who have lost their jobs as business downsizes in reaction to the crisis. That is estimated to be 15% as well. One group that is not being counted are the people in the "gig" economy such as Uber and Lyft drivers.

Central Bank Lending
The Federal Reserve has acted along the same lines as the other central banks—offering as many loans as needed to allow companies to survive the downturn. This has already involved billions of dollars. There is no sign that the effort will be reduced any time soon. The logic is that recovery will be rapid once the lockdowns are reversed and the companies that have been living off these loans will be able to recover relatively quickly. The scale and duration of these loan programs will depend entirely on the end of the quarantine efforts and the swiftness of the consumer recovery. It is expected that some sectors will be very slow to rebound.

Bigger Role for Government?
The last time the world faced a crisis of this magnitude would be the "war on terror," but even this crisis was not as concentrated and devastating to the global economy (although the period after 9-11 came close). The aftermath brough extensive governmental control in terms of national security. This crisis will likely trigger significant expansion of government in regard to health. The most often cited response to a future outbreak is expanded testing. This requires intervention on a large scale. South Korea and other nations have been using cell phones to track people's movements so it can be determined who they might have come in contact with.

Short Items of Interest—Global Economy

China Under Attack for Racist Policies
One of the results of the COVID-19 panic has been the expanded distrust of various populations. The U.S. and Europe have both seen an increase in attacks on people of Asian descent for fear that somehow all Chinese people are carrying the virus. Now China itself is being severely criticized for similar racist policies directed at African people. The authorities in Guangzhou have been arresting African people and demanding they leave the country. There has been no evidence whatsoever that people from Africa (or any other part of the world) are carriers, but rumors spread quickly based on reports from the U.S. that black Americans were suffering more infections and more deaths than white. The reasons for the larger infection rate among black Americans have everything to do with poverty, access to medical care and crowded living conditions and nothing at all to do with ethnicity or race.

Another German Advantage
The data from Europe has shown that Germany has been able to deal with COVID-19 better than many of their neighbors. Credit has been given to more cooperation with the isolation orders as well as better testing. Another major advantage is that German hospitals have not been overwhelmed as they have in many other places. The German medical system had been under attack the last few years for building up a surplus of facilities and beds; there had been attempts to reduce the investment. Now, the surplus has been hailed as a key factor in Germany gaining a level of control over the pandemic. Gaining an upper hand on the pandemic means progress on three fronts—testing, isolating and treatment. The Germans seem well ahead on the latter.

Oil War Truce at Hand?
Throughout the COVID-19 crisis, there has been another threat to the U.S. economy that would be getting a lot more attention were it not for the preoccupation with the virus. As worldwide demand for oil began to collapse in January of this year, the major oil producing nations turned their attention to preserving their market share. That made the U.S. a ripe target. The development of oil shale production had turned the U.S. into the world's largest oil producer, but the U.S. system has always been vulnerable to low prices. No matter how one looks at it, fracking is expensive. In order to keep that business viable, the price per barrel of oil has to be above $50. To be profitable, the price needs to be closer to $70.

Analysis: The decision by the Saudi Arabians and Russians (along with other OPEC states) to lower prices and boost production was designed to put maximum pressure on the U.S. oil sector, and it has. Dozens of companies have already folded and others are close. The investment that had been driving all that expansion has been rapidly drying up. The U.S. has been trying to pressure these oil producers to call off this war, but thus far there has been reluctance. The latest concession has been minor and the oil markets have barely budged. The sense is that Russia and Saudi Arabia intend to keep the pressure on. Then there is the issue that has affected them all. There is still no recovery of normal demand in sight. The global economic demand for oil will coincide with the resumption of normal activity. There is no sense of when that might take place. Even if there is a reversal of the shutdown orders, there is no guarantee that consumers and businesses will pick up where they left off. The slump in demand for oil could easily extend through the remainder of the year and even into 2021.

The Great Reopening Debate
There has been a great deal of tactical confusion when it comes to the COVID-19 pandemic. It has been apparent from the very start this was a dual threat. The virus was expected to behave similarly to viral attacks in the past, but with additional complications. It has the ability to spread far faster and it can hide very effectively. Around 95% of those who contract the disease get a mild version. It is estimated that roughly half of those who are infected show no symptoms at all. They become unwitting carriers. To deal with this kind of spread, the world had little alternative to the imposition of isolation and quarantine. This created the second problem. For many, this issue has been far worse than the infection. The percentage of people affected by COVID-19 remains very low, but the percentage of people affected by the lockdown of the global economy is nearly 100%. Around 22,000 people have died in the U.S. from COVID-19 and 16 million people have lost their jobs. The conversation has now shifted towards how to lift the quarantine.

Analysis: The first efforts to return to some semblance of normal have been in Asia as this is where the disease got its start and where there seems to have been a slowdown in infection and death rates. China, South Korea, Japan and others have attempted to restart their economies with mixed results. The travel bans have been lifted, factories are functioning again, retail outlets are open and there has been less concern over social distancing. There are still closed schools and large public gatherings have continued to be banned. Most importantly, the consumer has remained wary and has not returned to old habits as quickly as hoped.

Now the Europeans are working towards relaxing restrictions. There have been two schools of thought as to how to resume normal patterns. One has been to open up parts of the region that have not experienced significant infection rates. This would mean that lockdown would continue in urban areas and areas of human concentration. The fear is that people from the locked down areas would seek to migrate to the less affected areas and thus spread the virus. The second option is to expand the list of "necessary" businesses. Most of the nations left many places open as they were deemed essential—grocery stores, drug stores, hardware stores and the like. The steps being taken in Europe include opening up most all retailers. There is still reluctance to open restaurants, but pressure is mounting given the large number of people working in that sector who have lost their jobs.

In addition to decisions regarding what to reopen will be decisions regarding the conditions under which these restarts will take place. One of the changed sectors will be travel. The airlines have not shut down by mandate, but passengers are few and far between. The future of flying will be altered similarly to how it was changed by the 9-11 attacks. The emphasis now will be on health with officials inquiring about a passenger's health, where they have traveled and perhaps going as far as checking people's temperature before allowing them to board. There has been discussion of requiring people to have a recent set of test results before being allowed to travel. All of these decisions will impact hotels, theme parks and conference venues. Anything that people once traveled to.

Avoiding a Crisis in the Less Developed World
At this point, the developed world has its hands full coping with the impact of the COIVID-19 pandemic on their own economies, but that doesn't mean they are ignoring the next wave of this crisis. The infection rates are soaring in the less developed nations. They are even less prepared for this crisis than the rest of the world has been. They lack even a fraction of the needed health care capability and there has not been enough in the way of resources to share. The most important gesture that has been made thus far has been from the G-20 nations as they have agreed to suspend loan payments for at least the remainder of this year and quite possibly into 2021. This would presumably mean these governments would be able to focus their attention on getting ready for the onslaught of the virus. It will certainly not be enough.

Analysis: As bad as the pandemic has been in the U.S., Europe and Asia, it will be worse in these nations. They lack the medical capability and more importantly the tactics that have been employed in the rest of the world will be next to impossible in much of Latin America, Africa and South Asia. The social isolation approach will not work in the intensely crowded conditions most people face. The governments are not equipped to deal with the enforcement. This has been made abundantly clear with the challenge posed by Ebola, Marburg and the other viruses that have affected these regions in the past.

Getting to the Truth Is Never Easy
Statistics can be illuminating and their use can be highly manipulative. Someone skilled in the art of statistical analysis can make just about any point they wish by fiddling with the statistics. Right now, there is a great deal of fiddling going on as regards COVID-19. There are those who seek to present data proving this is a scourge on a par with the Black Death and those seeking to equate the damage to the common cold. Statistics can be manipulated to prove either point, but the truth will be somewhere in between.

Analysis: There are three areas that seem to have captured the most attention of analysts, political leaders and the overall public; the statistical "evidence" is all over the place. At the top of the list is determination of how deadly the virus is compared to the other disease outbreaks the world has endured. Is COVID-19 as bad as SARS, MERS, Ebola, etc., or is it not much more serious than the standard flu? I am not in a position to answer this (or the other questions for that matter) definitively. I can make note of some of the challenges. For example, when flu statistics are cited, they are estimates based on past experience, while COVID-19 cases are confirmed. If estimation tools used for the flu were applied to COVID-19, the numbers cited would be much higher. In other words, there is a comparison being made between an educated guess and a real count.

Another area of controversy has been testing. It is clear that one of the keys to dealing with COVID-19 now and in the future is testing. The whole strategy employed to blunt the impact of the virus would be different if we knew who had it and could identify new cases quickly. No nation was prepared for this outbreak as it had never been seen before. Since the start of the pandemic, there have been countries that have done better at testing than others, but these differences can be misleading. Today, there are at least two major testing protocols. There is the PCR test that looks for genetic markers and will identify someone who has the disease. There is also the antibody test that will determine if the person has ever had the disease. National priorities have differed. For example, the U.S. is behind most other nations in the administration of the PCR test, but is ahead in terms of the antibody test and has made more progress on some of the newer tests.

There are even statistical disputes over who is affected and to what degree. It is understood that there are vulnerable populations such as the elderly and those with some other health issue that compromises their lungs. There is very little known about those who have recovered despite the large number. The most complete set of numbers available comes from an amalgam of data collected by dozens of health organizations. As of April 13, there are 1,315,870 currently affected. Those with a "mild" case make up 96% of that total (1,264,986), serious cases make up 4% of the total (50,884). There have been 546,714 cases with an outcome with 79% having recovered and been discharged and a total of 114,982 deaths. Right there is a critical statistical issue. In mid-February there was a major change in how illnesses were recorded. Prior to February 13 the only cases recorded were those identified by the lab tests. After the 13th, the identification was by clinical observation and numbers jumped.

This does not mean that none of the statistics can be trusted. This is a moving target and data gathering is tough when there is rapid change. Remember the old adage—you can have data fast or you can have it accurate—you can't have both. Understand that we will not know exactly what we are dealing with for months and maybe years. That isn't an excuse for inaction, but skepticism is always a healthy response to new data that requires vetting.

Sober Realization
The imposed quarantine and lockdown has affected us all and has caused a certain amount of introspection. I have come to realize that I have been living a life of quasi-quarantine already. Many people I know have been profoundly affected by this lockdown as their lives depended on interactions that are now forbidden. Their kids were in sports and they had rich social lives that are now on hold. Their work environment was communal. My most profound adjustment has been to my travel schedule. I am no longer on planes or in hotels and at conferences. I do miss that part of my life. But when I look at the rest of my world, there has been less change than I would have expected.

This is especially true this time of year. In the spring, my wife returns to the garden and thus do I. We rarely went anywhere at this time in a normal year—too much to do. I have always worked at home, so that is not an issue. My previous travel schedule rarely allowed me an opportunity to engage with committees and work groups, so I don't really miss them. My wife has been a gourmet cook for years. Now, she has even more excuse to concoct as I am home to enjoy the effort. I am not asserting that these restrictions don't chafe, but I am profoundly grateful they have not been the burden they have been for so many others. I also have to point out that the feline five have been utterly thrilled with this new arrangement—laps available whenever they desire!

Most Affected Areas
This map can be used for one of two purposes. One can see where the most affected areas will be (in terms of economic impact) and make a decision as far as how to cope with the downturn, or one can look at the areas least affected and decide to move there. If the latter approach is adopted, the place that will see the biggest surge will be western Kansas. Perhaps now people will linger rather than race on to Colorado!

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Monday, 25 May 2020