Economic Commentary

“Opening the economy” is the phrase that seems to be taking up much of the oxygen lately, so let’s spend some time digging into exactly what that phrase means and how we might observe progress in the future growth of our economy. In essence, we want to put some data and facts into the equation to actually know and measure how we are doing. First, we need some perspective to understand the context of where we are currently with respect to employment and consumer activity.

Prior to February of 2020, I repeatedly offered that the consumer was employed, confident, receiving wage rate increases and was spending while continuing to save. Those statements were founded in economic data releases regularly followed by most economists. Our labor force in the United States, as measured by those working and those seeking work, was 164.6 million, and those unemployed were 3.2% of that workforce, numbering slightly less than 5.3 million, or approximately 1.3% of the estimated 331 million Americans.

As consumers, we were confident and expressing that confidence in two major monthly surveys by both the Conference Board and the University of Michigan consumer confidence survey. Both survey instruments recorded near all-time high levels. Our GDP was growing at a nominal rate of 3.7% and a real (inflation-adjusted) rate of 2.3%, which reflected not only a confident consumer, but a consumer that was spending. We were observing in real time the “Invisible Hand” economic theory of Adam Smith. This context of where we were is important in understanding the challenges involved in returning there.

Those that either wish for or propose a V-shaped recovery assume a quick return to employment and consumer confidence. On the other end of the spectrum are those that suggest a prolonged recovery much more similar to the recovery we experienced from 2008 through 2019, where we witnessed incremental growth in employment, consumer confidence and GDP growth.

To fully grasp the context of where we are today as we close out the month of May, we need a dose of real-time data. As of May 23, weekly new jobless claims grew by 2.1 million which, on a positive note, was down 13% from the previous week, but still aggregated to a 14.9% unemployment rate and a U6 unemployment rate of 21.8%. Data points are a reflection of real people and families. A 14.9% unemployment rate means that 7.5% or 25 million people in our country are unemployed. Previous census data adjusted annually suggests that we have 126.2 million households in our country and thus it is probably not an overstatement to say that the 25 million currently unemployed Americans impact one out of every five households.

What gets these people back to work, what keeps them employed and what returns their confidence to spend and grow our economy? Additionally, how do we measure our progress to continue to fully understand the very best public policy decisions that will help accelerate employment rate growth?

The New York Federal Reserve Bank recently announced the creation of a real-time weekly economic index that they created using a set of ten proprietary indicators that focus on labor, production and consumer activity. The index developed is updated twice weekly on Tuesday and Thursday and is posted as a negative or positive value related to where we were at the same date one year ago. To demonstrate the velocity of change, one year ago the index read +3.06 meaning that the economy as measured by the respective indicators of labor, production and consumer behavior was ahead of the previous year (2018) by slightly over three percent. On February 29 the index was posted at +1.58% reflecting nearly two percent growth over the same period in 2019. On May 9th of 2020 the index indicated -10.17% then dropped to -11.09% on May 16th and most recently as of May 26th recorded a level of -10.6%. If both relevant and accurate, the current Weekly Economic Index (WEI) reports reflect that our current GDP annualized rate is approximately 14% below the rate of growth experienced in 2019.

The answer to how our economic recovery is progressing will not be found on the nightly news or the reflections of politicians or political pundits, but rather in the data that reflects how many people are employed, what is being produced and how consumers are behaving. When we see it in that context we gain a sharper lens, and thus a better and more accurate understanding of where we are and the progress we are making or lack thereof. Although it is an election year, we hope that those in charge of public policy will view it that way as well.

Demand for goods and services creates production, employment and consumption. Government cannot create demand, but it can develop public policy that is most immediately impactful in the soft spots of employment and consumption that will sustain consumers until demand production and employment are once again real, rather than supported. The ideological divide in our country is all encompassing and impacts all public policy inclusive of pandemic viruses. Twenty-five million Americans are currently unemployed because their employers did not have the business required to employ them. It is nonsensical to assume that if all restrictions were removed in every state that goods and services demand would immediately resurface and the unemployed will immediately return to work. In January of 2020, US auto sales were 16.9 million annualized. April 2020 sales reflected a drop to 8.2 million annualized. Consumers cannot buy automobiles without the resources to do so. It is estimated that eleven million of the 25 million unemployed held jobs in small businesses of fewer than 50 employees. A large portion of small businesses are owner equity financed. This was a significant problem in the first two rounds of SBA loans to small businesses. The Federal Reserve and legislators assumed that all small businesses had “banking” relationships beyond checking types of services. The reality was that many small businesses, employing millions throughout our country, have no lending relationships with banks and are self-financed by owner equity. It is these types of small businesses that are most vulnerable to permanent failure. If we want to restore hope to these businesses and generate employment for the millions employed by them, we need a more creative opportunity to support them than the current SBA programs.

Not too many months ago we registered a labor force in excess of 164 million people and an unemployment rate of 3.2%, with an increasing labor participation rate. The 5.3 million unemployed represented 1.5% of our population and only 4.3% of America’s total households. To my eye, these statistics reveal that Americans, like almost every other person, desire to work and will if there is opportunity to do so. It is disappointing to hear the ideologues debate stimulus programs through the lens of scarcity rather than abundance, and with the assumption that if we provide stimulus payments direct to consumers we will make them lazy and unwilling to return to work. It is all the more disappointing when those asserting this ideology in Congress do so with lifetime incomes and benefits paid to them in taxes by the very people they assume to be lazy.

Chaos brings opportunity, and much will change. In the moment, most of us are unsettled by change and often by the velocity of change. Stability is comfortable — especially for those in charge and those with power — yet change occurs and none of us can control the velocity of change. Every day we see evidence of change created by the chaos we find ourselves in, and some of that change is good and will be very useful to us if we allow it to be.

Better forecasting models of disease spread, better treatment protocols, better medications, vaccines and a greater focus on staying ahead of the curve rather than catching up can all result from this opportunity. Greater global investing supporting all of the previous will allow for us to be better prepared for the next pandemic. But that won’t occur if we allow a disease to be politicized and suffer the consequences of doubting science and data. Who would have imagined that wearing or not wearing a mask to protect yourself from others or others from yourself would become a political party identification symbol.

There will be much more to learn that will help us grow economically, socially and educationally as a result of the change we find ourselves in. It will be dangerous to ignore the opportunities or limit our discovery due to ideology.