Economic Commentary

Progress continues to be made in multiple areas in the battle against COVID-19. Through February 28, over seventy five million Americans have received at least one dose of vaccination against the virus, which is about 23% of the current population. The rate of vaccination currently stands at 1.74 million per day; although it is not always consistent, the five day average model continues to grow. Recently, two new versions of vaccines have shown excellent results and are likely to be approved shortly by the FDA. Both of the vaccines are highly effective, can be stored at more normal temperatures and require only one dose. The Johnson & Johnson product is in production and likely to be in supply by mid-March. The new vaccines, as well as the increased production of the Pfizer and Moderna products, provide for the opportunity to increase the inoculation rate substantially. A recent study and forecast model produced by the Kaiser Family Foundation illustrates that ramping the rate to 3.3 million per day is both possible and necessary to get us in the 70% inoculation rate by early fall. Amplifying the previous positive news is the increased longitudinal studies suggesting success against variants with current vaccines as well as data supporting the notion that those vaccinated are not likely to be spreaders of the virus. COVID-19 is not over and in many ways will be with us for some time; however, the debilitating aspect of the virus may well be on retreat. Consistently lower data in infections, hospital admissions, quicker discharges, and fewer deaths per case rates are indicative of lessons learned that are being put to use in new protocols for those infected and treated. Booster vaccines are being developed to provide those with anti-bodies from previous infections a greater immunity and for variants of the virus to become more muted. The combination of the progress described above is good news, as is the recognition of the need to fund the boots on the ground to move vaccination processes beyond the traditional healthcare model. New forecast models are being constructed; however, it now seems that the probability of achieving disease repression within 120 days (late summer) is improving rapidly.

As we have written previously, disease repression is critical for structural improvement in our economy. Current unemployment data is encouraging. According to the Bureau of Labor Statistics, the January household survey demonstrated that the unemployment rate fell 0.4 percentage points to a rate of 6.3 percent, and the number of unemployed persons decreased to 10.1 million. Both of these measures are far better than the horrific numbers reported in April 2020; however, they are above the pre-pandemic levels of 3.5% unemployment rate, reflecting 5.7 million unemployed persons.

Labor force participation was unchanged at 61.4%, and duration data on those reporting being unemployed remained the same, averaging 29 weeks with 4.0 million of the 10.1 million unemployed indicating unemployment currently lasting 27 weeks. Continuing to be hardest hit were leisure, hospitality, retail trade, retail, food and beverage as well as healthcare, all of which continued to lose more jobs in January of 2021. Healthcare losses were accelerated for the month by job losses in senior care facilities. Recent announcements by an increasing number of states to decrease allowable percentage of occupancy restrictions suggests that we may have seen the bottom in the retail food and beverage sector, though many operators validate that even at a 50% occupancy allowance, it is very difficult to sustain profitability. The trends in employment statistics are overall positive and should continue to coincide with improving data on COVID-19 repression.

At this writing the House of Representatives has passed the Democrats’ COVID-19 stimulus plan, and it is on to the reconciliation process in the Senate. The political divide in the proposed plan was focused on the federal minimum wage boost to $15 per hour as well as the federal boost in unemployment to $400 per week and $1400 stimulus cash payment to taxpayers earning below $200,000 per year. As with most large legislative proposals, there were a few egregious examples of items that had precious little to do with COVID-19 and most were whittled out of the bill.

We have written extensively about raising the minimum wage previously. All of the data on the topic reveals that there is little impact upon national data such as unemployment rate, inflation and business sustainability. The overwhelming majority of those earning minimum wage are part-time employed, comprised of students and retired people who are supplementing their income. According to the Bureau of Labor Statistics, 2.3% of those paid an hourly wage in America were paid at the Federal minimum wage rate in 2017 and that level fell to 1.9% in 2018. Comprehensive data is not yet available for 2019 but the landscape is clear, a very small percentage of hourly workers are paid at the prevailing minimum wage rate. For those earning only the current minimum wage rate it would matter a great deal for their wage to rise 206%, and for many in that category it could be life changing and lift them out of poverty.

Several cities have been on a journey to require minimum wage rates, such as Seattle, Tacoma and Berkeley, but the sample size and comprehensive study of data makes the assumptions more theoretical and somewhat anecdotal than certain. As Federal Reserve Chairman Powell stated in his testimony to Congress, “There is no consensus among economists, they are all over the place on this.” What may be the case is that the number of wage earners earning the minimum wage is small and decreasing, especially in stronger economic cycles such as those experienced from 2011 through 2019. Increasing the minimum wage for less than two percent of hourly wage earners will make a huge difference for them and likely not have a huge impact on the other 98% of hourly wage earners. As the former Fed Chair and current Secretary of the Treasury Janet Yellen recently committed, “We intend to keep interest rates low in order that the economy continues its rebound. Doing so will allow the market forces of lower unemployment to benefit those last hired and first fired.” Costco’s recent announcement to raise the starting salary of its associates to $16 per hour caps a 45% increase in starting wage for Costco employees over the past five years. Perhaps it is the best recent example of the market forces that raise employment standards as companies and economies prosper.