By Chand Bellur
March 16, 2020 at 4:53 p.m. PDT
- The novel coronavirus pandemic has investors selling off stock.
- Employers are expected to lay off workers as the pandemic peaks.
- Technically, a recession occurs after two consecutive quarters of declining GDP. The National Bureau of Economic Research, however, can declare a recession sooner.
COVID-19 Creates Economic Turmoil
Markets hate uncertainty. There’s no greater uncertainty than a novel virus pandemic where testing is still far behind the disease’s progression. Most healthcare authorities have more questions than answers about the disease. We know it spreads easily and has a significant mortality rate, however, the true state of the pandemic is largely unknown.
Without adequate guidance or leadership, the United States has succumbed to fear over the virus. There’s a run on toilet paper and cleaning supplies, as people fear the worst. Both casual and institutional investors are selling off stock, as they face uncertainty.
As of market close on March 16, the DOW has lost over 9371 points, falling from 29,551 on February 12 to 20,180 today. Yes, the DOW has lost about one-third of its value in about a month. Novel coronavirus is a serious disease, destined to kill millions if its expansion is not contained.
Beyond the stock market, millions of Americans are sidelined from work. Although they’re not officially laid off yet, it’s expected that shuttered businesses can’t keep employees on the payroll.
Trump Administration Fails to Instill Confidence
From denial to happy talk, Donald Trump has done an exceptionally poor job of handling the crisis. The best method of dealing with a pandemic is to test as much of the population as possible. Quarantining the infected and their contacts is a highly effective strategy for containing infectious disease.
Instead of accepting tests from the World Health Organization, President Trump decided that America has the best doctors, who would quickly develop a test. Weeks later, the United States faces a major shortage of COVID-19 testing kits.
Without widespread testing, the only solution is social distancing. This means shutting down public gathering places, which both serve and employ the public. If proper testing were in place from the beginning of the crisis, a much more effective test and containment approach could have been used. The Chief Executive fumbled during a critical stage of the pandemic, with the country now trying to control the damage.
China and South Korea are Models for Infectious Disease Response
Compare the United States’ response with that of China. Using technology developed after the 2003 SARS outbreak, Chinese health authorities quickly detected a cluster of viral pneumonia cases. They tested these patients and found that the disease was caused by a new coronavirus.
There’s a notion that the Chinese government tried to suppress knowledge of the disease. This is not entirely true. They didn’t want one individual doctor to speak openly about the virus. The Chinese wanted coordinated, consistent messaging with the government, in order to minimize panic and disorder.
Once the disease was discovered, Chinese health authorities quickly developed a test and used this to engage in surveillance testing. By pinpointing infection hotspots, they were able to quarantine and effectively slow the pandemic’s course.
South Korea also engaged in similar pandemic control. Through extensive testing, the small nation was effectively able to slow progression of the disease. They even provided testing support for the U.S. military, stationed in Korea. They were able to provide test results for the U.S. military in only 24 hours.
The lack of testing has created a situation of both fear and complacency. The more conscientious people, who follow melodramatic twenty-four hour news, are afraid and overreacting. Trump’s dedicated base, on the other hand, felt that the disease was a hoax created by the Democratic party. This could possibly create a situation where Trump’s base is both incapacitated and partially reduced from the disease. Those who survive may lose faith in the controversial leader. If his motive was to keep the economy going for the sake of re-election, the reality is quite different. He may end up killing off a lot of his base, with others reluctant to believe him. He will still have a core group of fanatics, however, their numbers will surely decline.
We’re Not in a Recession Yet
Despite the gloomy global outlook, it’s important to realize that we’re not in a recession yet. Technically, a recession is defined as two quarters of consecutive GDP decline. One would also expect to see some unemployment.
The National Bureau of Economic Research (NBER) can declare a recession before two quarters of economic decline occur. It’s expected that, if conditions continue or get worse, they will declare a recession near November’s election.
Although declaring a recession typically allows the government to change policy course, this has already been done. Expect to see more government action aimed at damage control. The United States now has to clean up the damage caused by a poor initial response to a global pandemic.
Many journalists have taken it upon themselves to declare that we’re already in a recession. This may be true, but let’s wait for the NBER to confirm this. It’s possible that we may have overreacted to the crisis, however, it’s likely more severe than we know. That’s kind of the point. Without adequate testing in place, we just don’t know much at this point.
Early indications are that the virus has spread through much more of the U.S. than previously thought. As testing capabilities are ramping up, health authorities are finding more infection throughout the nation. It’s in virtually every state in the United States, and almost every nation in the world. Even Greenland has one case. This means that Americans and people throughout the world must shelter in place, which has drastic consequences on brick and mortar businesses.
Online Commerce and Computer Manufacturers Will Flourish
One silver lining is that online commerce will flourish during these difficult times. Concerned consumers don’t want to risk going to brick and mortar stores, only to find empty shelves. Online retailers, such as Amazon, will fare exceptionally well.
Computer makers, such as Apple and various PC manufacturers, should also experience an increase in sales. More and more workers will be forced to telecommute. Dependence on smart phones has left a lot of households with obsolete computers. Some homes have nothing but smartphones, tablets and TV appliances. This new, virtual workforce will purchase notebook and desktop computers, which could take the sting out of Apple’s quarterly earnings.