William D. Johnston

Chairman

Economic Commentary

As we enter our seventh month of the COVID-19 pandemic in the United States, our current condition appears to be more of the same with conditions changing marginally in some areas. Cases spiked in July and early August and have been trending downward in some regions while remaining stubbornly unchanged in others. As we put this newsletter together, our case total is nearing six million in the US with 182,000 deaths. Per day case identification is approximately 46,000 which has fallen from the 56,000 per day case rate average in early August.

Colleges and Universities have had a rough start to on-campus classes and residence occupancy as the off-campus life remains difficult if not impossible for academia to control. Youth, a large dose of immortality combined with immaturity and alcohol (sounds and feels familiar when I reflect upon my undergrad years) doesn’t mix well with social distancing, wearing a mask and avoiding large crowds. As a University Trustee, I know very well the huge and complex Rubik’s Cube logistical nightmare of trying to assure student, faculty and staff safety while simultaneously offering the full opportunity of a meaningful educational experience. Impossible is the term that comes to mind.

Similar challenges face the world of K–12 education. No one individual wants to be the spreader of a disease that has the potential for fatal outcomes to those with comorbidities. The concept of asking students, faculty, bus drivers, custodians and support staff to come together in potentially compromised settings that allow for increased spreading capacity must and I think is being taken seriously by all involved. Most parents and educators know that virtual learning is neither optimal nor equitable, and the thought of one more semester of remote/virtual learning pleases almost no one. Perfect solutions are not obvious nor attainable and we are left to compromises and individual solutions based upon individual circumstances. If there were ever a choice where “one size doesn’t fit all,” this is it.

Much of our country’s workforce is impacted by the choices families are faced with this fall. Working families have always had to balance work, school, child care, after-school activities, nutrition, academic support and family life. Under current conditions, all of the above remain on the list, yet the typical “school” setting is now at home and much of the supplemental child care support has been fractured if not totally unavailable. The multigenerational family structure that I, and a good portion of my generation grew up with, where grandparents and relatives lived, if not in the same home then certainly within the same neighborhood, doesn’t exist today.

Over the past fifty years we have become more mobile and more dispersed, and with that dispersion our traditional support systems have become eroded. Certainly, technology allows for greater mobility, but the human interaction of caring for one another cannot be replaced by software and technology. Organizations of all types will be tasked with the requirements of partnering with their employees to manage the duplicity of work and family life responsibilities in this pandemic. Daycare and pre-K education is very individualistic within our country. As with most responsibilities that are left to the individual, those with the greatest resources have better opportunities to manage the outcomes. Access to data, internet and technology has never been more valuable. The ability to deliver those resources to children within a home where virtual classrooms are the expected norm is a huge advantage to that child’s continuing educational growth. The disparity between those with the resources to be at their child’s side in every sense of the word and those without the resources to do so only magnifies the inequity of the outcome.

Chaos brings opportunity. The infrastructure system in our country does not just include airports, seaports, highways, energy and communication networks. Access to wireless internet with sufficient bandwidth to participate fully in society in today’s world is an essential part of that infrastructure system. More than ever, in both rural and urban communities, the evidence of lack of access will become transparent and with that transparency laid bare, hopefully the resolve to solve that access will surface.

The New York Federal Reserve’s Weekly Economic Index (WEI) released this week registered -4.91. As we mentioned when we first introduced this index, the New York Federal Reserve combined several real time economic indicators focused on production, labor and consumer activity as a proxy for understanding where we are currently with respect to GDP. This index allows us to understand the difference between current conditions and measure that condition in relationship to the previous week, year or relevant point in history. The current reading of -4.91 is an improvement over last week and continues the trend in improvement since the bottom reading of -11.45 recorded on 5-20-20. The bottom WEI reading in the recession of 2008/2009 was released on 2-28-09 at -3.93. What the index reveals is that activity relative to production, employment and consumption is still very much in deep recession territory but is improving. As with any post-recessionary period of recovery, we would expect the improvement to be inconsistent and variable from week to week and month to month, yet it is a barometer worth watching.

Continuing claims for unemployment was released as 14.5 million individuals and unemployment at 10.2%. Consumer confidence improved ever so slightly to 74.1% from the previous month’s reading of 72.8%. The needle hasn’t moved much in unemployment to increase consumer confidence, and those receiving unemployment benefits recently received a significant reduction in benefits when combined with state as well as federal benefits. As we know, GDP is driven by consumer activity. Demand for goods and services will increase when consumers become more confident. What is the magic sauce for that confidence? COVID-19 crushed the demand and unemployment crushed the confidence. Progress on COVID-19 significant enough to alter the condition we are in will be required to increase both demand and confidence.

Both political parties completed their virtual conventions in August. We are sixty days from the 2020 Presidential Election. Nick Juhle and his great research team have put together a webinar on the impact that presidential elections have on financial markets and I hope you will sign up and attend the webinar, I know it to be first rate. Voter turnout will be the key to the election result. Both candidates have made their case and as usual there are few undecided voters. A review of post World War two voting statistics reveals that participation among voting age US citizens has ranged between 50% on the low to 65% on the high end. In 2016 52% of the voting age population participated while 54% of the voting eligible population cast votes. This was a significant reduction from the 2008 and 2012 election when nearly 61% of the voting eligible population participated. As we saw in the Bush/Gore as well as Trump/Clinton election, popular vote doesn’t always win the election, rather it is voter turnout and popular vote in the right combination of states that provides the winner with 270 electoral college votes that truly matters. Both parties understand the task before them and will marshall their resources to turn out the vote in those relevant swing states. If you live in one of those states, be prepared to be bombarded by robocalls, postal box leaflets, media ads and knocks on your door, and if you look to the heavens for relief you just might see a plane carrying a banner. The reality is that all of those efforts and monies spent will have little impact on who the individual voter wants to be the next president, that decision has been made. What does matter is the number of voters who, with their already made decision in hand, actually exercise their exclusive right to vote.

COVID-19 Updates

As of September 20

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