Are State Reopening Policies Turning The Economy Around?

A new report says small businesses in the South are growing sharply.  But other economic data still show stagnation across the board.  

Amid continuing waves of bad economic news, we are starting to hear reports of a potential economic turnaround.  Economist Kevin Hassett, a White House Senior Advisor, said last week he was “really positively impressed by how quickly things are turning around” after reviewing credit card and other economic data.  And on Thursday, Fivestars, a major small business payments and customer loyalty platform, released positive news in their latest weekly “Small Business Reopen Report.” Based on company data, the report finds that “small business spending nationwide increased 14% since last week,” supporting “a slow but steady recovery.”

There’s no question that some consumers flocked to previously closed businesses over the Memorial Day weekend.  Pictures of a crowded boardwalk at Ocean City, MD, or jam-packed bars at the Lake of the Ozarks, MO went viral, spurring talk of new economic growth but also raising fears of increased exposure to the COVID virus.

But do these reports signal a stronger turnaround?  Are states that are “ramping up reopening” doing better than others, as the Fivestars report claims?  And even if aggressive reopening states are growing faster, will relaxing public health vigilance lead to a second coronavirus wave later this year, which in turn could cause new shutdowns and economic hardship?

If you squint hard, other data might appear to be indicating a small economic improvement.  Economist Jed Kolko of Indeed.com, an online jobs posting service, sees a slight improvement in job postings, while emphasizing that the trend is still 35.1% lower than one year ago.  And Kolko attributes a recent year-to-year improvement in new postings “more to a slowing trend in 2019 than a pick up this year”—meaning the gap is closing more because a slowdown last year, not sharp gains this year. 

Other indicators and analyses do not tell a positive economic story.  On Thursday, new weekly state unemployment insurance (UI) claims data were released.  An additional 2.1 million new claims last week pushed the ten-week total above 40 million.  Measured just by UI claims (true unemployment is likely higher, as not everyone files for UI) those 40 million lost jobs more than wiped out all of the jobs—22.4 million—we added after the Great Recession.  We have lost more jobs in 10 weeks than we gained in 11 years.  

The speed of these losses and decline is breathtaking.  It only took six weeks for Georgia to pass the number of UI claims it had for the entire Great Recession, and that older level for Georgia took around 80 weeks to pile up, not six.  Florida and Texas both reached their Great Recession levels of new claims in only seven weeks, not in the eighty weeks it took previously.  So unemployment numbers are not signaling any strong rebound, in southern states or anywhere else.

Small businesses also face continuing negative forces, even as government aid flowing through the federal Paycheck Protection Program’s (PPP) is providing hundreds of billions in financial support.  The PPP has suffered many administrative failures, but the Census Bureau reports that 74.6% of small businesses had applied for funds by May 23, and 69.4% received them.  Still, many firms remain worried about their future. A late March survey found that if the economic crisis lasts six months, less than 40 percent of small business survey respondents still expect to be open at year’s end. 

And just yesterday, the Federal Reserve released its monthly comprehensive survey of the nation’s economy—the “Beige Book, which gathers reports from the nation’s twelve regional Federal Reserve banks.  The Fed doesn’t find any signs of real recovery in any region.  Instead, they report that “economic activity declined in all Districts” and that “the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery.”

It may be that hopeful reports like the one from Fivestars, or Hassett’s reading of credit card data, are picking up something these other sources are not.  After all, the economy can’t go down forever, especially with the trillions of dollars the federal government is providing through household checks, expanded unemployment insurance, direct payments to state and localities, and the PPP and other business assistance. 

So we might expect some uptick from this massive government funding, and just the logic of sheer numbers.  At some point, there will be declining numbers of unemployed people and shuttered businesses, since most of the damage will have been done.

But the potentially more controversial claim, in Fivestars’ words, is that states that are “ramping up recovery” experience significantly faster economic growth.  Is there a conflict between stronger public health measures and economic recovery?  And what might be the public health consequences of faster economic reopening?

As I noted in an earlier blog, Americans are still very fearful of the virus; 71% percent in a recent Gallup Poll endorsed “stay(ing) home as much as possible” versus 29% calling for “lead(ing) normal lives.”  April’s University of Michigan’s Survey of Consumers saw a 17.3% drop in positive consumer sentiment, “the largest one-month decline in nearly a half century.”

There’s no question that business shutdowns sharply reduced economic activity.  But consumers and households may have adjusted behavior through their own choices, not simply being forced to shelter because of public rules and guidelines.  If households are self-policing and the fear of contagion continues, they may continue hanging back from full economic and social engagement. And if they do, simply declaring economies as reopened won’t solve the economic problem.

Analysts at Opportunity Insights looked at data from Georgia, one of the most aggressive “reopener” states, and found spending fell and many small businesses closed before the state finally issued an official “stay-at-home” order.  And although government payments to households and other sources lifted spending by 11 percent, “little has changed now that the ‘stay-at-home’ order is lifted,” with consumer spending still down by 20% since February.

Opportunity Insights did find that several southern states, with generally less restrictive public health measures, showed somewhat faster employment growth.  But the numbers are still very far below the start of the year—hourly employees are down 37.9% in Florida, 21.8% in South Carolina, and 33.1% in Georgia, compared to the national average of negative 39.4%.

So there may be some slight economic improvement in more aggressive “reopening” states.  But the nation’s overall economic picture remains very troubled.  And if we have a too-aggressive reopening, before the virus is under control, it could feed a second disease wave later this year, in turn prompting a new round of closings and economic disruption.  While we hope for an economic turnaround, we must keep our eye on all of the economic data and also on public health.  The two are deeply intertwined, and both our economic and health futures depend on them.