Morning Jog

Over the Mountain

If a tree falls in the forest, but no one cares because: the whole forest is on fire, does it make a sound?

The answer is a definitive “no”, judging by how the second quarter GDP number was received this week. The number was stark – a 9.5% contraction in economic activity from the first quarter – but not entirely unexpected given the extent of lockdown measures imposed in April and May.

The failure by Congress to strike a deal on a second fiscal relief bill, prior to Friday’s expiration of the $600 weekly supplemental unemployment benefits was also predictable, given how far apart ($2 trillion, give or take) House Democrats and Senate Republicans are in their proposals.  Evidently, 30 million people on unemployment rolls is not reason enough pick up the pace, but they’ve got one more week before recess to hammer out a deal and political stakes are high enough that something should get passed.

Released on the same day as the GDP report, the weekly jobless claims number is one trend that bears watching closely. Initial claims, through regular state unemployment programs, rose for a second week to 1.43 million, indicative the churn in the labor market, as layoffs outpace rehiring.

The bungling of our healthcare response and the stalling economic recovery is starting to take a toll on consumer confidence. The Expectations component, gauging near term outlook, fell to a four-month low in July, with clear implications for consumer spending.

Meanwhile the stock market…OK, big tech really, doesn’t seem to care…because *all together now*: the market is not the economy.

But the longer and the shallower the recovery path, the higher the likelihood that temporary economic damage turns permanent.  Of the 132,580 businesses on Yelp that reported their status as closed since March 1st, 55% have indicated that the closure is permanent. Not surprisingly, restaurants account for the majority of permanent closures, closely followed by retail.

How we continue to manage the health crisis, has major implications for consumer confidence and behavior.  And while to date, the response has been woefully inept, maybe, just maybe we are turning a corner. As the hard-hit states in the second wave started to reimpose restrictions and people curtailed social activity, we are now starting to see the lagged effects in moderating case and hospitalization trends.

Sincerely hoping this is not the second wave, but the final one.

Be well,