“Take a look. I think you’ll quickly see the problem.”
No, not the picture above …. the one below:
Correct. The first estimate of 2020 Q1 GDP ‘growth’ is … well, not growth. It’s the opposite of growth. Un-growth?
No; of course there’s no such word. The correct word would be ‘shrinkage’ or ‘contraction.’ Because that’s what happened. Per the Bureau of Economic Analysis, the US Gross Domestic Product shrunk at an annual rate of 4.8% during Q1. In ‘nominal’ dollar terms, this equates to a reduction in GDP of $191.2 billion for the quarter. Amazingly enough, just about 2-weeks of business closures — I’m speaking about the last 2-weeks in March — had this impact. Of course, the business closures spanned the globe (perhaps, by that time, except for portions of China) damaging the economies of almost every country on the planet. But you already know this. I simply find it amazing that just 2-weeks of closures in a 13-week quarter could cause this much damage. If this is the destruction from only 2-weeks, imagine what might happen after a full quarter — a full 13-weeks of closures — if our leaders decide businesses must remain shuttered from April thru the end of June? I dread the thought.
We need to open our economy back up. And we need to do it very, very soon.
If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/
Before COVID-19, the world’s annual GDP was about $85 trillion today. No longer. It has shrunk sizable during ‘The Great Lockdown.’ I did not coin this phrase — the IMF did. The same folks who track global GDP. Until recently, annual US GDP exceeded $21.7 trillion. Together, the U.S., the EU and China still generate about 70% of the global economic output.
It attempts to predict the direction of our GDP ahead of official economic releases. Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth. In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending. Consumer spending is clearly a critical financial metric. In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric. I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.
If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.
Heartless. I suspect a reader or two may feel I’m absolutely heartless. How can I possibly possibly suggest our leaders re-open our economy now? Am I suggesting they have miscalculated by their choice to shut down the US economy as completely as they did, for as long as they have, when the alternative may have been far greater human tragedy and death than we’ve already experienced? How can I be so cruel?
Sure. I get it. I understand. In fact, let me share a sobering viewpoint from a Bloomberg editorial I read earlier today: “Recorded deaths in the US are near 60,000. Imagine 9/11’s death toll 20 times over, repeating on a loop, every day or two. About 7,000 Americans died in 19 years of war in Afghanistan and Iraq. The coronavirus killed more last week.”
This is absolutely horrible. But I am not heartless. Like you, I am humbled and staggered by the toll this virus has taken from us all. I feel it too.
But I also feel for the those experiencing economic damage, starting with the unemployed. The comment below was taken from a Department of Labor ‘News Release‘ on April 23rd:
And the worst is yet to come for those in the labor market. Equally devastated are business owners, of all shapes and sizes. From the ‘mom-and-pop’ restaurant operators … all the way to the LA Lakers, businesses have been crushed. But again, you know this. I only mention the Lakers because I found it immensely entertaining, and equally disturbing, that they both qualified for, and obtained, a $4.6 million PPP loan. ‘Entertaining’ because I have never considered the LA Lakers — with a market value exceeding $4 billion — to be a “small business.” I suspect you’ll agree with me on this point. And ‘disturbing’ because both their CFO and a commercial bank (I don’t know which one, but I’m sure we’ll find out) both agreed that it was a good idea to apply for the loan. Yes, make no mistake, the Lakers are in a bad spot, with all games cancelled, but really … a ‘small business’ loan? This was a good choice, Mr. Buss?
I want to go on record to say that The Steakhouse Index has not applied for a PPP loan or any government assistance whatsoever! None. Zip. And it never will! On the other hand, this blog has never generated any income, so I guess I really have no reason to even think about applying for a ‘hardship’ or ‘economic damage’ loan to replace lost income. 🙂
Earlier this month, California Governor Newsom, outlined a “framework” for reopening the California economy. He told us re-opening dates would be determined by the ability to do six things:
Testing is #1, eh? Well, this is concerning. Testing levels remain dismal. Right now, as I write this blog, the US has completed 5.59 million COVID-19 tests. This includes those here in California totaling almost 578,000 (as of the 27th). In a country with 330 million people, and a state with almost 40 million, these are pathetic numbers. Less than 2% have been tested both in CA and in the US? If testing level is the metric to reopen, at this rate, we’ll be lucky to open our economy by Christmas.
Below is one of the better, current California COVID-19 data sources I’ve found. Up at the top left is a “pull-down” menu. Take a look (right click, open in a new window):
I find it interesting that both age and ethnicity are part of the data and debate. Searching for ‘positive cases’ in the pull-down we see the number is just over 46,500. (Note: This page refreshes often … so this data changes slightly. It might be different when you access it.) We see just about every age group is generally susceptible to the virus — perhaps with the exception of those lucky enough to be 17 and under. Only 3% of all known cases have shown in this age group. And we seen that almost half — 49% to be precise — of Californians infected with the virus to date are between 18 and 49. Now, please select “deaths” in the pull-down menu. Not a single death for youngsters 17 and under. Not one. And how about in that under 49 group with about 1/2 the cases in CA? 7% of all deaths are in this age group. If I have the math correct, that equates to 132 poor, unfortunate folks under 49 years of age. The vast, vast majority of the 1,887 California deaths are in the 65+ age group — 78% of all deaths are here.
Clearly, folks under 49 years of age catch the virus. But they are unlikely to die from it. They should be far more worried about heart disease and cancer. Or road accidents:
Let’s do a bit more math. Folks 18 – 49 years in age have had 49% of the 46,500 “positive cases’ but only 7% of the 1,887 deaths. So this age group has experienced almost 23,000 cases … and 132 deaths. That calculates to about a 0.57% mortality rate. And this calculation uses only the known positive cases. Antigen test results now suggests there may have been tens of thousands or more positive, but unknown and asymptomatic, cases here and across the world.
Within the Bureau of Economic Analysis release from earlier today was this unusual comment:
Makes sense. And below, from the FED in a press release just minutes old:
Right. You’ll notice both comment on reduced demand. ‘Demand destruction’ is a real thing. Left unchecked, the next ‘outbreak’ we face may be one of global deflation. Unemployment and wage cuts reduce demand for products and services. This is serious … and grows more serious as time passes. The state and federal stimulus and benefits may help glue the economic system together, preventing a complete unraveling, but loans and unemployment compensation don’t replace customers or revenue. If a business has no customers, it has no revenue. Without revenue, it cannot pay an employee. Our economic system is not designed for the levels of unemployment we face, or the resulting deflation, should our economy remain closed. The longer the closure, the greater the damage.
Sorry, Governor Newsom, but we can’t use “testing” to decide when California re-opens. We must find another approach. The fate of the 5th largest economy in the world, and it’s 20 million hard-working citizens, may rest on your decision. But I shouldn’t just complain, right? I should offer workable solutions! So here we go …
Governor Newsom, if you’re listening, the following is my suggested solution. And remember, Guv, I am a highly-successful, well-paid blogger with millions of followers! (Sorry, all, fake news. I am paid nothing. And I have 8 followers. No one actually cares about my opinion.) Regardless, here are my 6 steps to fully open the California economy:
Of course, I’m just kidding in #6. Or am I? Yes, I am. I far prefer the beaches in Wailea. I’m a kidder … just like President Trump when he suggested sub-dermal injections of disinfectants might be an effective virus cure.
Seriously, though, I think this Hawaii idea has legs. It could be the a “win-win” we’re all looking for! 🙂
– Terry Liebman