William D. Johnston

Chairman

Economic Commentary

Evidenced by the spring break crowds as well as daily airline passenger totals, it is clear people are experiencing real COVID-19 fatigue and are increasing their appetite for risk. Further evidence is the infection rate among younger individuals that helps to explain increased case rates and hospitalizations. Fortunately, duration of stays in hospitals have been shortened and recoveries have improved — both of which were aided by the benefits of increased vaccinations and developed treatment protocols. Although the late fall appears to be the light at the end of the tunnel, it seems that a good portion of the population is wishing its way to the light, rathe   r than staying patiently on the best track.

Through March 28, 143 million doses of the vaccine have been administered in the United States, and nearly 51 million people, 15.5% of the population, have been fully vaccinated. The current seven-day average administration of the vaccine is 2.4 million doses per day, with the highest single daily dosage being recorded at 3.4 million. The administration’s goal has been to increase the vaccinated total to 200 million people by the end of May, and to make the vaccine available to all people age 16 and above beginning May 1. Those producing the vaccine have stated that the goals can be met from the production side of the equation.

Assuming we achieve consistency in vaccination rate, as well as antibody development by those already infected and those who are likely to be infected, the late July or early August target to achieve 70% immunity remains within reach. Getting to the upper band of 85% immunity is not likely to occur until late fall and also depends upon shrinking the level of those who remain opposed to the vaccine from its current level of 35%. We have maintained from the outset of the pandemic that structural recovery of the economy will not occur until the pandemic is in remission, thus economic data will continue to reflect only incremental improvement until the vaccination targets of late fall are met. Consumer confidence, buoyed by improving demand and employment, will be the determining factors that propel us to sustainable growth and eliminate the need for continued stimulus packages from Congress.

Our unemployment rate has changed little from previous communications and remains at 6.2%, and the number of unemployed is hovering at 10.0 million people. Both measures are well below their April of 2020 highs, but substantially above the pre-pandemic levels that everyone yearns to return to. The various demographic measures of age, race and sex with respect to unemployment did not change during the period. Continuing to decline within the statistics is the number of people on temporary layoff. At the depth of the economic crash during the March 2020 shut down, nearly 18.0 million unemployed persons considered themselves temporarily unemployed, and their individual circumstances certainly justified that self-classification. At least two things have occurred during the last twelve months for this segment of the unemployed. First, many self-selected and permanently changed employment with the greatest migration according to the data of workers transitioning from hospitality to logistics. Secondly, many who believed their employers would call them back as the need required have received official notice that their employers have permanently closed. This is further evidenced by those small business owners who have responded to surveys indicating that they themselves were looking for employment, and had insufficient resources to reopen and employ others.

Duration of unemployment, long term unemployed (27 weeks) and labor participation rate (61.4%) remained unchanged, as did average hours worked and average wage. More states are reducing required COVID-19 restrictions, primarily around gathering, occupancy within businesses and hospitality. The appetite to return to in-classroom learning is strong, and it is almost a certainty that most school districts throughout the country will face significant pressure to be fully in-person this fall. Several state legislatures have threatened severe revenue penalties for school districts that do not open for in-person learning. As more businesses and schools return to pre-pandemic settings we are likely to see an increase in COVID-19 cases, but also an increase in employment activity to support that migration back to the office, classroom, restaurant, hospitality venue and leisure activity. The shift in employment activity and GDP growth rate will be gradual as we migrate our way towards immunity; however, both will be necessary for consumer confidence and spending to improve.

The Biden administration is experiencing just how fleeting political capital can be. It is clear that they believed the low hanging fruit in their reach was to make substantial and quick progress on suppression of the pandemic by rolling out a successful administration of the vaccine. What was not in their line of sight, nor does it appear they were prepared for, was the influx of unaccompanied minors at the southern border. Every crisis competes for the same political oxygen, and progress on vaccinations quickly gave way to the border crisis. No administration wants a crisis, but no amount of wordsmithing makes a crisis go away. Modern political reality is that you have to solve and address multiple emergencies at the same time and be prepared for more emergencies in the future. When your domestic and foreign political adversaries see that your plate appears full they will send more your way.

Immigration reform is hard political work that takes significant legislative time even for those Presidents who have enjoyed the benefit of having their own party control both branches of government, just ask Presidents Clinton, Bush (George W.) and Obama. During twenty-four years of failed starts and stops, no meaningful immigration reform has passed any legislative effort. After four more years of constant political dialogue about our “southern border” under the Trump administration, we now stand at nearly thirty years of immigration reform inaction.

Crisis, be it natural or political in nature, is dealt with in quick sprints and immediate actions that address the immediacy of the crisis but rarely the conditions that created it. The mass migration out of Syria into and through the borders of Western Europe created chaos at borders, xenophobic reactions within European nation states, refugee camps, and extreme and horrific family destruction that had to be handled with immediate aid and relocation attempts. The condition that created the crisis which was attributed to the authoritarian dictator of Syria, Assad, was never effectively addressed by the international community. The examples of treating symptoms and not the cause of immigrants seeking asylum are many and have been repeated throughout our globe’s history. So how does the process of immigration reform begin within the context of a border crisis? Where does the political dialogue start when one party sees the migration as an attempt at illegal immigration and the other party sees the migration as largely asylum seekers? These answers are not clearly obvious.

What is obvious is that we are a mature, industrialized and advanced economy with a very low birth rate. Over the past three decades, our population has grown from 300 million to 330 million people, which is a growth rate of barely 1% per year. Without immigration, our growth rate would be negative. The long-term implications of negative population growth rates are troubling at best and are, from a macro perspective, fewer people paying for increasingly greater costs to preserve the same, and ultimately declining, standard of living. The impact is not immediate, which is why growth of population is a tough immigration selling point. The current generation is not likely to witness it nor feel it and when you add self and political power preservation to the mix the benefits of immigration to boost population growth get quickly dismissed.

What is not going to change is the following. We as a country have 97,000 miles of borders. Think about that number for a bit. For the last four years we have been focusing on about 800 miles of the 97,000 miles of borders we own; the reality is that the current crisis is defined by far fewer than 150 miles. If countries in our hemisphere or across the ocean are destabilized, populations within those countries will seek safety, stability and opportunity elsewhere. I would, and you would too. If we don’t create a rigorous, fair process that is appropriately resourced to meet the needs of the current and future political fluidity in the world, we will forever be in crisis. Along the way we also might define a way that upholds our nation’s history of welcoming refugees and asylum seekers, helps our neighbors build free and prosperous nations, meets our country’s needs in the 21st century economy, solves our population’s negative growth rate and allows for a pathway to citizenship for those who are undocumented but want to get in line in a way that honors our current policies.

COVID-19 Updates

As if April 11

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