A closed restaurant is part of the broken food supply chain
President Trump and the White House Coronavirus Task Force did not hold a press briefing yesterday. The Vice President toured the Mayo Clinic in Minnesota. It was noteworthy that Mr. Pence chose to not wear a face mask. The Mayo Clinic requires all patients and visitors to wear a mask or face covering. This is yet another example of the mixed messages coming from the Trump Administration.
The Markets
The Dow Jones Industrial Average ended yesterday down 32 points, or 0.13%. The S&P 500 Index fell 15 points, or 0.52%.
So Many Questions
The stock market is processing information related to the country’s efforts to re-open the economy, after entering what we have referred to as a medically induced economic coma. Both the coma itself and the re-opening that now follow are unprecedented and we really don’t know how it will go. How extensive was the damage to the economy? How will industries that were virtually shut down (e.g. dine-in restaurants, airlines, hotels, professional sports and many others) respond, as people emerge from “stay at home” orders? How much “re-opening” can even occur without widespread, accurate testing and contact tracing?
Mark Zandi, the Chief Economist for Moody’s Analytics believes, “The economy will be fundamentally different.” He expects many workers will work from home now that it’s been established that it’s both possible and doesn’t reduce productivity. Zandi also predicts that there will be worksite safety measures that will become a routine part of business operations (e.g. infrared thermometer guns, frequent cleaning of surfaces, distancing between workers, removal of shared food storage). Some jobs will essentially go extinct, some businesses will not survive, and consumers will remain cautious for some time.
Economic Contraction
The US Bureau of Economic Analysis reported this morning that the economy contracted in the first quarter. Gross domestic product (GDP) feel by 4.8% (annualized). This undoubtedly understates the actual impact of the novel coronavirus, because the US economy was very healthy until mid-March when the shutdowns began. So, this economic reduction took place in a matter of a few weeks.
The Congressional Budget Office (CBO) estimates that the economy will contract 12% in the second quarter. The CBO expects the unemployment rate to be 14% in the second quarter and 16% in the third quarter, which will be the highest employment rate since the Great Depression. JP Morgan predicts that US GDP will shrink 40% in the second quarter. The bank also expects economic contraction of 45% in the Eurozone, 59% in the UK and 35% in Japan.
Food Production
There are industries that have been hit extremely hard by Covid-19, and food production is one of them. As we noted yesterday, there have been several large outbreaks of the virus at meat processing plants. Nearly two dozen plant have shut down, because workers have contracted the virus. The result is that the country’s meat supply is threatened. The chairman for Tyson Foods said, “The food supply chain is breaking.”
Employees at these facilities work in close proximity to each other and it is very difficult to operate these plants with proper social distancing. So, it is not surprising that once one employee was diagnosed with the virus, many other workers were soon found to be infected.
The workers in these plants are not given proper personal protective equipment that the federal Occupational and Safety Health Association (OSHA) explains “minimizes exposure to hazards that cause serious workplace injuries and illness.” They are also not paid well. The have, very understandably, demanded safer working conditions, better protective equipment and higher pay.
President Trump has invoked the Defense Production Act to order meatpacking plants to remain open to maintain the nation’s meat supply. The order said: “Closures threaten the continued functioning of the national meat and poultry supply chain, undermining critical infrastructure during the national emergency.” The order forces the identified plants to remain open and it shields the companies from liability if workers become sick.
Covid-19 Numbers
A grim milestone was hit yesterday. In less than three months, we have lost nearly 59,000 citizens to this virus. That eclipses the number of Americans who died over nearly two decades in the Vietnam War. For additional perspective, the Centers for Disease Control and Prevention (CDC) reported that, during the 2017-2018 flu season, 61,000 Americans died.
The Wait Continues
We are now waiting for the best and brightest among us to develop better testing methods, create effective treatments, design complex contact-tracing systems and discover a vaccine. Our economy depends on it, and so do we.
Until then, we encourage you to remain vigilant.
Keep the faith, be safe and stay healthy.
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