Last
week’s dramatic plunge of the GDP in the U.S. to 32.9 made a lot of people take
an equally dramatic gasp at the report card for America’s economy, for the
second quarter, to be a predictor of doom, or what some are calling the
Cassandra Complex for the world’s largest economy.
Battered
and buffeted by a pandemic that seems to see no relief, for most of the
country, it represents the sharpest loss in modern American history, and is
poised to take millions of non-working Americans to the brink of survival.
Joined
with the dramatic rise of cases in the Southwest, and Florida, the effects of
rising infections have come to the Midwest, as Illinois Gov. J.B. Pritzker
said, with that state's rising infection rate, “We’re at the danger point.”
For
the nation, there are 4.6 million infections, and 154,000 deaths, according to
Johns Hopkins University, and the economic result has sabotaged the “halting
recovery” that many were counting on to raise the dilemma that many American
families and individuals are facing, with over 14 million of them unemployed.
Employers
were on the brink of feeling their way back to some semblance of solvency,
“Not
only have we plateaued, but we may be losing ground,” said Diane Swonk, chief
economist at the accounting firm Grant Thornton in Chicago. “To have these
kinds of numbers in July when many in Congress hoped this would be over by
summer underscores how unique and persistent the Covid crisis is,’ she
commented to The New York Times.
The
unemployment figure, what we call the marquee figure, doesn’t say it all and
seeing even that drop from 15 percent in April to 11 percent in June, buoyed by
the first round of stimulus checks, acknowledged by economist, not has agreed
that the outlook is not good, and this Friday’s jobs report from the U.S. Labor
Dept. is not expected to be good, and to reflect even further decline in
employment, especially for service employees, but also for the travel and
leisure community, not to mention the decimated airline industry.
The
freefall in consumer spending helped to bring the second quarter’s GDP drop by
34.6 percent as most held onto their spending and lowered their use of credit
and debit cards.
The
surge in unemployment filings shows a growing sense of desperation from urban
centers to rural hamlets as many wait for Congressional relief in the form of
not only another stimulus check, but to keep the $600.00 unemployment extension
that many people see as their lifeline, but many Republican senators see as a
disincentive to look for work, and while negotiations are in full bore, any
loss will be seen as actions in the voting booth this November.
While
that money was well spent, said Federal Reserve Chair, Jerome Powell, as the
Fed closed its two-day meeting, noted that the stimulus money was well spent,
but also that the drawn out recovery will take every tool needed to ensure even
a remote sense of solvency; and more notably stressed that the U.S. economy is
now being driven by COVID-19.
Their
measures are to buy asset backed securities, loans to small businesses and the
purchase of corporate bonds to shore up the bond market.
The
deepening recession, a sinkhole, say some economists are going to take years
for a full recovery.
The
hit to the service industry is now 43.5 percent, and the restaurant industry,
an especially large employer for larger U.S. cities about 650,000 is in a
weakened position as many people, even with 25 percent capacity restrictions,
as it struggles to remain open, as it sheds employees.
With
rents ranging from $3500 to $100,000 a month and attempts to meet payroll
proved daunting for an industry that was once the hallmark of the recovery from
the Great Recession, and where 75 percent of all growth in leisure and
hospitality came from this area; making it work is one of the challenges that
many owners have, and also some feel that it’s a “lose lose”, all the way
around: lose if you stay open and lose if you close.
Reactions
such as these gathered by The Brookings Institution, from
their website, are just part of a much larger picture.
56
percent of all restaurants have acquired at least $50,000 of new debt as a
result of COVID 19 and there are expectations that many restaurants will lose
$240 billion by the end of 2020, noted sevenrooms.com.
Food
preparation and service is the second most common job in the United States,
they noted, and the stark truth is that two thirds of all restaurant employees
have lost their jobs.
Facing
loss is the production industry, down by 11.3 percent, but Monday’s ISM report
showed that “American manufacturers expanded in July for the third month in a
row, but senior executives say production remains well below pre-pandemic
levels and not all the jobs are coming back soon,” according to Market Watch.
“The Institute for
Supply Management said its manufacturing index rose to 54.2% from 52.6% in June,
marking the highest level in 15 months. Economists surveyed by Market Watch had
forecast the index to total 53.6%., they added.
An important caveat is that, “Although readings over 50%
indicate growth, the index doesn’t measure the actual amount of production or
tell how much it has improved. The survey basically asks executives if their
businesses are doing better or worse compared to the prior month.”
LinkedIn, the professional networking site, has laid off 1,000
employees, approximately 6 percent of its workforce, but there is good news:
their employees will get at least 10 weeks of severance pay, and continued
health coverage through COBRA.
The country’s largest retailer, Walmart has agreed, with some
pressure from labor unions, to extend bonuses to frontline workers, due to the
current surges, and according to Associated Press it will give $300.00 to full
time hourly workers, and $150 for part time hourly workers.
Meanwhile the business community has slashed spending in every
area, new investments, equipment, and physical plant, but the area they most
often have cut is that of pay cuts, and a reduction in hours, which come to say
are just different sides of the same coin.
While it’s safe to assume that this is an action taken by small
business, there are some big names that have done the same: Tesla, General
Motors, and Occidental Petroleum to name but a few.
Perhaps, of greater concern is the drop in revenue for state and
local government, and while estimates are the best that can be had, (due to the
beginning of the new fiscal year, for many states), the provision of extensions
for deadlines for collections have not allowed for 2020 final figures, but a
general estimate is that there was a 10 percent loss for the 2020 fiscal year,
and a 20 percent loss estimate for 2021.
Some of the big states like California, New York and Illinois
are seeing the following: $32 billion in 2021, for California; $13 billion for
2021, in New York; and for Illinois, in 2020, a $2.7 billion loss.
As we have noted before, this can result in a serious job cut
for many black and brown people, who hold positions in some of America’s
largest cities,
On the federal side there has been an increase in government
spending of 2.7 percent, in the spring, and a ratcheting up with the stimulus
checks to 17 percent.
For international trade, the balance sheet was even more skewed
as exports shrank by 64% in the second quarter, with a corresponding drop in
imports of 53 percent, sending more workers to the unemployment line.
It's a certainty that King Covid, as some are calling the
pandemic, is here to stay, even in the short run until a vaccine is proven,
after early clinical trials, which are currently being conducted, with dire
consequences for the American workforce.
Problematic is that the response from the White House is
precarious and misleading, with President Trump citing dubious claims like
ingesting Lysol, and then the unproven treatment using hydrochloride, and then
under pressure, reversing himself, then being angry with Dr. Deborah Birx, as
she predicted the pitfalls of a new and even more deadly round wave, (with many
people feeling that he is spinning about to try and ward off the prospect of
being defeated by Joe Biden); and then remarkably after stating late last
month, “by comparison to most other countries, who are suffering greatly, we
are doing very well,” then in the face
of the U.S. having the highest infection rates and deaths, in an Axios interview on HBO, he said
regarding the high death rate “It is what it is.”
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