Initial jobless claim for the week ending were slightly up at 1,416,000 for the week ending July 18, which means that the reversals of business openings as COVID-19 infection rates soar again have flattened the wrong curve—applications for unemployment insurance are no longer declining.
They are remaining at a level that creates a very prolonged U-shape at the bottom of any curve for GDP growth. It almost looks like an L-shape, in fact, which means stagnant growth if we want to use letters to describe the recovery rate.
It’s becoming more and more like the ‘Whac-A-Mole” game, because when we knock down the infection rate in one state, it pops up in another.
The first Q2 estimate of GDP growth comes out July 30, and GDP could fall as much as minus -20 percent, according to most estimates. But just when we would expect growth to resume in the July-September quarter, COVID-19 infections have surged at an alarming rate.
Former FDA Commissioner Scott Gottlieb told MSNBC that testing demand will only continue to rise heading into the flu season, which means infection rates will plateau rather than fall, as well.
“If you look what’s happening in Southern California right now, Texas, Arizona, Florida — there are indications perhaps that the epidemics in those states are starting to peak. It’s likely to be a long plateau (also, L-shaped?). It’s not going to be like the New York experience, where there was a sharp up but a sharp down — granted, excess mortality, excess death and disease along the way.”
Perhaps the easiest way to understand the relationship between COVID-19 and economic growth, hence jobs, is to look at both letter-shaped curves—as long as they are ‘flattened’; the stagnation in economic growth is mirroring the stagnation in infection rates, the slower the economic recovery.
“But they (New York) came down pretty quickly from their epidemic,” continued Gottlieb. “These are likely to be more extended, but, even when these states start to peak — if you look at the data, it looks like Georgia is getting hot, Ohio is getting hot, Missouri has an epidemic under way, Tennessee, Montana — so even as certain states start to peak and maybe have a reduction, other states are heating up.”
Maybe we should call this the ‘Whac-A-Mole’ recovery after the Japanese game of the same name. So the faster we can ‘whack’ down the virus outbreaks in individual states and regions with a coordinated plan of testing, contact-tracing and isolation of infections, the faster will be the economic recovery.
Harlan Green © 2020
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