When governors and the federal government made the decision to close “non-essential” businesses and issue shelter-at-home orders to slow the spread of COVID-19, they did so without the benefit of a historical precedent. We are only now beginning to understand some of the ramifications of this drastic action. As the U.S. moves to unshackle its economy, millions of workers sit nervously waiting for a call from their employer. Though some workers have returned or hired on with companies that have thrived during this pandemic, others may never get ‘the call’ as companies restructure. You see, a crisis provides an opportunity (and motivation) for companies to reevaluate their business model in search of ways to cut expenses and increase profits. This is because success depends on how well a company can meet the needs of its consumers (revenue) and how well it manages its expenses. The difference between revenue and expenses is profit, which is the driving force behind the private sector. Profit is the lifeblood of every business and it is this lifeblood that is under attack.
How quickly will the U.S. economy return to normal? The answer is ‘it depends.’ It depends on how fast the unemployment rate falls. It depends on how quickly the consumer returns to their pre-COVID level of spending. It depends on the path of the virus. In essence, it depends on a myriad of variables. Let’s begin with unemployment as this will determine the level of economic growth over the next 12 to 18 months.
The official number of unemployed workers is now slightly over 41 million. This is substantially higher than the 5.75 million unemployed at the end of 2019. The current number of unemployed workers represents approximately 26% of the ‘pre-COVID-19’ work force. The unemployment rate hit 14.7% in April, the highest figure since the 24.9% rate during the Great Depression. According to some sources, unemployment is expected to reach 25.2% by the end of this year. Unlike the depression, however, the cause of this downturn is known, and the policy response has been more on point. Even so, can the U.S. economy return to normal with so many workers on the sidelines?
Slower Return to Normal?
Roughly 70% of the U.S. economic engine comes from consumer spending. Thus, when the consumer is actively engaged, the economy tends to prosper. Remove an additional 35 million consumers from the work force and, well, the economy suffers. More importantly, debt plays a vital role in economic growth. When consumers borrow, they spend more, which leads to growth. When you look at the level of total credit issued from all commercial banks since 1973, the average increase from one month to the next was 0.6%. In March and April of this year, the increase was 2.8% and 3.3% respectively. However, this was due to a 25% rise in commercial and industrial lending, much of which is attributable to the Paycheck Protection Program.
What about the largest driver of economic growth? Loans to consumers, which averaged a 0.5% increase from month to month since 1973, fell 3.5% in April. This is the largest monthly decline on record. This reduction in consumer lending has led to weaker consumer spending and slower economic growth. In fact, from March 1 to the end of April, consumer spending – as measured by personal consumption expenditures, fell nearly 20%. If you reduce the volume of loans to consumers – again, the largest contributor to GDP consumer spending falls and the economy slows. Therefore, we must find a way to help the consumer regain what they lost from the shutdown.
What else will affect the return to normal? It starts with demand, which, due to the shutdown, has plummeted. This is why the federal government, the Treasury, and the Fed embarked on a massive stimulus program to put money into the hands of Americans. However, since a one-time payment of $1,200 per individual and $500 per dependent won’t go very far, the federal government added a $600 per month bump in unemployment benefits.
The segment that benefits most from this are workers at the lower end of the income scale. Assuming these unemployed workers are receiving a total benefit of $800 per week ($200 state; $600 fed), this equates to over $41,000 per year. Working for $15 per hour, 40 hours a week, 52 weeks per year, yields $31,200 in gross income. Therefore, where is the incentive to return to a lower paying job? Unless extended, the $600 federal stipend will end July 30. This could lead to a flood of workers seeking reemployment. But how many of these jobs will be filled by then?
Safety concerns are key to consumer demand, which is key to the reemployment of the unemployed. How fast will the consumer reengage? Will there be a second wave of the virus? Will the virus mutate, hindering efforts to develop a vaccine? Regardless, some businesses will permanently close, others will reopen more slowly than expected, and many will look vastly different. Technology will assist those who continue working from home and replace jobs in some industries.
The ‘return to normal’ boils down to how well businesses adapt to this rapidly changing environment and become profitable again. A prosperous business community is necessary for a plentiful job market, which is critical for a thriving economy. If businesses fail to thrive, workers will have fewer employment options and unemployment could remain elevated for longer than necessary. Thus, saving our businesses may be the most important task of all, outside of the virus that is.
Palestinian Economy Hit Hard by Virus Needs Aid, World Bank Says – BNNBloomberg.ca
(Bloomberg) — The Palestinians will need outside help to overcome a poor economic outlook and widening budget deficit made far worse by the Covid-19 pandemic, according to a new World Bank report.
Already facing a growth slowdown and sizable deficit, the West Bank and Gaza Strip could see output shrink between 7.6% and 11%, depending on how fast the economy recovers from the virus, the World Bank said in its report published on Monday. President Mahmoud Abbas’s Palestinian Authority may watch its fiscal gap roughly double to more than $1.5 billion this year, and will need significant aid to restore growth and solve budgetary issues, the bank added.
“Several years of declining donor support and the limited economic instruments available have turned the ability of the government to protect livelihoods into a monumental task,” Kanthan Shankar, World Bank country director for the West Bank and Gaza, said in a release. “External support will be critical to help grow the economy during this unprecedented period.”
After economic expansion cooled from 8.9% in 2016 to just 0.9% last year, the pandemic forced World Bank officials to cut their 2020 expectations from a previous 2.5% increase. Restraints on movement helped to contain the spread of the disease but also hurt activity and government revenue.
In total, there have been more than 430 confirmed cases of the novel coronavirus across the West Bank and Gaza, with three deaths.
Israel, which occupies the West Bank and blockades Gaza along with Egypt, is loaning the Palestinian Authority as much as 800 million shekels ($227.8 million) over the coming four months to help make up for the loss of tax revenue. The rare deal is meant to ensure funding for hospitals and other key services.
World Bank officials focused on recommendations to upgrade the Palestinian telecommunications sector in cooperation with Israel, in order to further develop the digital economy. Israel maintains a tight grip on broad aspects of the Palestinian information and communications technology sector.
Tensions between Israelis and Palestinians are rising as Prime Minister Benjamin Netanyahu promises to move forward this summer with annexing West Bank territory viewed by Palestinians as the heart of their future state. Palestinian leaders have promised to end all forms of cooperation with Israel in protest.
Now That He Can Annex West Bank Land, Will Netanyahu Do It?
©2020 Bloomberg L.P.
People more important than the economy, pope says about Covid crisis – The Guardian
By Philip Pullella
VATICAN CITY (Reuters) – Pope Francis said on Sunday that people are more important than the economy, as countries decide how quickly to reopen their countries from coronavirus lockdowns.
Francis made his comments, departing from a prepared script, at the first noon address from his window overlooking St. Peter’s Square in three months as Italy’s lockdown drew to an end.
“Healing people, not saving (money) to help the economy (is important), healing people, who are more important than the economy,” Francis said.
“We people are temples of the Holy Spirit, the economy is not,” he said.
Francis did not mention any countries. Many governments are deciding whether to reopen their economies to save jobs and living standards, or whether to maintain lockdowns until they are sure the virus is fully under control.
The pope’s words were met with applause by hundreds of people in the square, many of whom wore masks and kept several meters from each other. The square was reopened to the public last Monday. Normally tens of thousands attend on a Sunday.
The last time the pope delivered his message and blessing from the window was March 1, before Italy, where more than 33,000 people have died from the virus, imposed a lockdown. The last restrictions will be lifted on Wednesday.
Francis led the crowd in silent prayer for medical workers who lost their lives by helping others.
He said he hoped the world would come out of the crisis more united, rather than divided.
“People do not come out of a crisis like this the same as before. We will come out either better or worse than before. Let’s have the courage to emerge better than before in order to build the post-crisis period of the pandemic positively,” he said.
(Reporting by Philip Pullella; Editing by Susan Fenton)
ANC Looks for New Levers to Boost South Africa's Economy – BNNBloomberg.ca
The head of economic transformation in South Africa’s ruling party proposed a range of measures to bolster the economy, ranging from encouraging the use of pension funds and the central bank to finance infrastructure spending to the creation of a state bank and pharmaceutical company.
Enoch Godongwana’s recommendations to the African National Congress come as the government tries to revive an economy devastated by the coronavirus pandemic.
“The Covid-19 shock is posing unprecedented challenges, the economic crisis entailed by the pandemic is unique,” Godongwana said in the May 22 document seen by Bloomberg. “Globally, central banks have reverted to their original role as bankers to their governments.”
While business and investors have been calling for strong government action to support Africa’s most-industrialized economy, the document may heighten concerns about state intervention and so-called prescribed investment — mandatory funding by private companies of certain sectors.
In the document, Godongwana proposed changing regulation 28 of the Pension Funds Act to boost the funding of infrastructure projects spearheaded by state development finance institutions using private capital. South Africa’s main state-owned DFIs are the Industrial Development Corp. and the Development Bank of Southern Africa, of which Godongwana is chairman.
He also suggested that the Reserve Bank help finance DFIs through the creation of a 500 billion-rand ($29 billion) fund. Money should also come from the Public Investment Corp., a 2.13 trillion-rand fund manager that oversees civil servants’ pensions, Godongwana said.
“While it faces increasing continental competition, the South African financial-services sector can rightly be said to endow our emerging-market nation with ‘the financial plumbing of a rich place’ with deep, liquid markets,” he said.
While the document is a break with the thinking of some ANC leaders that the state should be responsible for much of the investment in the economy, it does advocate increased government “guidance.”
“A narrow and flawed understanding of what the developmental state is has led to the erroneous conclusion that it is only about public investments and public ownership, with a related over-emphasis on the limited funds of the state,” he said. “A developmental state does not necessarily mean higher levels of state ownership, but high levels of guidance.”
In an interview with Johannesburg’s Business Times, which reported on the document earlier, Godongwana said the proposals didn’t amount to advocating for prescribed assets. They merely meant that regulations should be changed so that pension funds can invest in DFI’s if they wish to.
Godongwana didn’t answer a call to his mobile phone. Neither did Pule Mabe, the spokesman for the ANC.
The document also proposed the formation of a state bank, a pet project of Finance Minister Tito Mboweni, and a national pharmaceuticals company.
It also advocated, in contrast to the drive of some government departments, a swift move away from coal-fired energy to renewable power. The state-owned Central Energy Fund should be used to partner private investors in new projects, Godongwana said.
©2020 Bloomberg L.P.
Benoit Paire's New Look: Social Media Roundup – ATP Tour
Predicting The Toronto Maple Leafs Playoff Roster – Editor In Leaf
PlayStation 5 games reveal event June 4: How to watch, start time and what to expect – CNET
- Sports22 hours ago
Maple Leafs-Blue Jackets Qualifying Round debated
- Art6 hours ago
Demonstration planned at Vancouver Art Gallery to honour George Floyd | News – Daily Hive
- Health19 hours ago
344 new coronavirus cases, 41 deaths in Ontario as total cases rise to 27210
- Sports17 hours ago
UFC on ESPN 9 in tweets: Pros react to Gilbert Burns’ domination of ex-champ Tyron Woodley – MMA Fighting
- Health23 hours ago
COVID-19 outbreak declared at farm in Norfolk County
- Media22 hours ago
China media bristles at U.S. moves on Hong Kong over national security push
- Tech16 hours ago
Microsoft Is Replacing Journalists With Artificial Intelligence
- Media18 hours ago
China media, Hong Kong government bristle at Trump's pledge of curbs, sanctions – Cape Breton Post