Coronavirus and US Consumer Confidence

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Shockingly consumer confidence in the US economy is on the up according to the Consumer Confidence Index.  In fact, it is highest since it has been in nearly 10 years.  Economists are also surprised by this figure. 

Bloomberg economists put the index at 90.5 but it was actually substantially higher at 98.1. According to Conference Board Senior Director Lynn Franco:

“The re-opening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions. Looking ahead, consumers are less pessimistic about the short-term outlook, but do not foresee a significant pickup in economic activity. Faced with an uncertain and uneven path to recovery, and a potential COVID-19 resurgence, it’s too soon to say that consumers have turned the corner and are ready to begin spending at pre-pandemic levels.”

Another source of optimism is the White House’s call to bosses to make a  “Pledge to America’s Workers,” in an effort to work toward the creation of more jobs and strengthening of the economy.  To date – according to the White House – over 430 companies have signed it. A Press Release stated:

“The Coronavirus pandemic has highlighted the need to build and expand high-quality pathways that will lead to good jobs and rewarding careers for all Americans, especially those most affected by this crisis. The Trump Administration remains committed to supporting the millions of workers who need assistance right now while building a resilient, agile workforce for the future.”

How Long will it Really Take for the Economy to Bounce Back

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In our last piece we spoke about how some finance experts believe that the American economy is bouncing back ahead of schedule.  But now we have other experts predicting that it is going to be an extremely long haul and that the next 10 years will see the country recovering.

An analysis by the Congressional Budget Office indicating that a reduction in economic output in America over the next decade will reach $7.9 trillion.  That damage – for now leaving aside inflation costs – will translate to $15.7 trillion.  The CBO did however add a caveat, pointing out the huge level of uncertainty and unknown surrounding the pandemic.

Capital Economics Group Chief Economist Neil Shearing said:

“While the slump in output caused by the virus seems to have bottomed out, the recovery is likely to be slow going and uneven. Most economies are still likely to be below their pre-virus paths of GDP by the end of our central forecast horizon in 2022,” 

He gave three reasons for this:

  1. Tremendous Loss: We tend to forget – as we see the economy recovering – that so much output was lost during lockdown.
  2. Consumer Spending Predictions: these remain unclear from high frequency data we are receiving.
  3. Reopening Worries: Governments and policy makers are still trying to figure out the best way to re-open, “shift[ing their decisions] from crisis mode to recovery.”

Another issue to consider – as pointed out by a recent Bloomberg analysis – is that while businesses are beginning to re-open, given that this is within a context of rising COVID-19 cases, panic is mounting and this will likely negatively impact the economic recovery as well.

Optimism on Post-COVID-19 US Economic Recovery

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When the shutdown began due to COVID-19, stores and businesses worldwide were forced to close operations and thousands of people joined the unemployment lines, no one for a second imagined a recovery would be anything but traumatic. But there has been some good news for the US economy; it seems that recovery is happening and that it is actually ahead of the estimated schedule.  In May of 2020 America gained 2.5 million jobs and unemployment actually dropped to 13.3 percent, rendering it the highest gain in job creation since numbers were recorded by the Bureau of Labor Statistics in 1939.

Of course these numbers do have to be taken in context.  April saw huge losses so comparatively that number might not be as positive as it initially appears.  Indeed, nearly 21 million jobs were lost in April of 2020.

And there is also the issue of the “misclassification” rendering the numbers inaccurate too.  Many were rendered as employed but not at work but the reality was not that they were working from home for example but they were temporarily laid off with no guarantee of a return to work and if so, in what capacity.  That would have put the unemployment figure in May actually at 16.1%.

Nonetheless, given that unemployment figures for May were estimated at approximately 20 percent, today’s numbers look good.  As President Trump stated during a a press conference:

“We’re going to be back and we’re opening our country. And if you look at the lockdown governors … the ones that are most energetic about opening, they are doing tremendous business and that’s what these numbers are all about.”

With a trillion-dollar rescue package and much larger unemployment aid, the recession has been guided through government aid as well.

Re-Opening of the US Economy

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Last month the re-opening began. Throughout the country different states began opening their economies for business along with certain guidelines.  Nonetheless there are some concerns about the timing with some experts warning against the potential of catalyzing a second wave and thus an even greater spike in re-infection and economic hardship.

Change in US Electricity Sources

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Government predictions are indicating that in an unprecedented move, US electricity will likely be sourced more heavily from renewable power than coal. The reasoning behind this is partly due to COVID-19 and will have significant ramifications in the fight against climate change.

This marks a substantial change from the situation of 10 years ago when coal provided almost 50 percent of America’s electricity. In addition, it is within the backdrop of the current government’s effort to help the industry by diminishing pollution regulations on coal-burning power plants.

According to the Institute for Energy Economics and Financial Analysis (based on data from the US Energy Information Administration), since March 25, renewable energy sources have been manufacturing more electricity than coal power in the US. The following is a statement from the IEEFA

“The transition away from coal for electricity generation has accelerated in 2020 due to a number of factors, particularly low gas prices, warmer weather, a significant amount of new renewable capacity connecting to the grid late last year, and more recently, lower power demand from the economic slowdown because of the coronavirus.”

COVID-19: How the Big Firms Weather the Storm

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COVID-19 is affecting everyone: personally, as a family, a community, a business and globally.  In this article we take a brief look at how some firms are faring better than others.

In this kind of crisis climate, the bigger corporations with more resources seem to be managing better, in particular, the tech giants. For example: Amazon, Microsoft and Apple.

Shares of Amazon hiked up almost 30 percent this year from massive increases in online deliveries.  Given the increasing need for cloud services, Microsoft also benefited enjoying a 9 percent increase.  Apple is an interesting case as its product is not necessarily an essential product and right now demand is higher for those offering essential services.  However, once Apple 5G is launched it is anticipated profits will soar.

Overall, as most are realizing, the process of re-opening the economy will take much longer and be much tougher than shutting it down.  Even if some states re-open they will not necessarily be able to function at normal levels since they often depend on other states (that have not yet opened) for their products/services.  Today, companies are often terribly reliant on firms and individuals nationwide – and even worldwide – for completion of product.

COVID-19: New Type of Purchasing?

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Markets are moving in new directions.  The demand for digitalization is growing at an extraordinary pace in the age of social distancing.

BlueJeans – one of the world’s largest videoconferencing, screen sharing and video calling companies with around 15,000 customers – is being bought out by Verizon for approximately $400 million. According to Business CEO of Verizon Tami Erwin:

 “As the way we work continues to change, it is absolutely critical for businesses and public sector customers to have access to a comprehensive suite of offerings that are enterprise ready, secure, frictionless and that integrate with existing tools.”

BlueJeans will be built into Verizon’s 5G offering.  Since companies such as Zoom have faced hacking issues and the New York City Department of Education told workers not to use it, other rival companies are now seeking to profit from the new business opportunity.

COVID-19: Fiscally Recoverable?

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We know that the global COVID-19 crisis is hitting firms and individuals very hard in many ways, not least of all financially.  What economic experts and financial organizations saying about this?

On the one hand, Kristalina Georgieva, IMF Chief, points out that there has not been a fiscal crisis this bad for over a hundred years, since the Great Depression.  She believes it to be “the worst crisis since the Great Depression a century ago,” and not only that, but there will likely be lasting damage.

In the space of merely three weeks, 17 million US employees are now hitting the unemployment line.  New York Federal Reserve Bank economists are thus comparing this to a natural disaster (such as a massive earthquake) as a standard financial crisis usually happens over a longer period of time.  However, given that there are not the same physical consequences, it is believed that a faster economic recovery will be more likely.

Former US Treasury Chief Economist and Peterson Institute for International Economics  contributor Karen Dynan – while noting the 20 percent plummet in the US economy in April and May – is predicting a 7.2 percent rebound in the US economy next year, year-over-year.

Further, on the other hand, some economists are predicting a “solid rebound” once people can get back to work.

Coronavirus Relief Bill

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There is a $2 trillion Relief Fund Bill for Employee Retention set up by President Trump.  But should that run out of money, he has pledged to seek additional funding from Congress.  During a COVID-19 White House briefing, Trump said:

 “This is money that’s really going directly to the people who need it, the small businesses who need it, and the workers that need it. When we open, we want to open strong with businesses that are going.”

Known as the CARES Act – the Coronavirus Aid, Relief and Economic Security Act – this has been hailed as “the largest economic stimulus bill in modern history,” more than 100 percent higher than the Stimulus Act initiated during the Financial Crisis of 2009.

Hope for US Economy

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President Donald Trump said Tuesday he wants the U.S. economy to “open” back up by Easter Sunday, despite expert warnings about the deadly threat of the coronavirus. Easter is April 12, less than three weeks away. Medical experts had recoiled at Trump’s suggestion that Americans could gather en masse amid the coronavirus outbreak.