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June 1, 2020

Covid-19 : Tracking the Recovery – June 1, 2020


A sense of optimism has been developing in financial markets as all 50 states have now taken steps to reopen businesses and bolster economic activity. Changes in the data tracked on infection rates point to a flattening of the curve and the number of tests being administered per day continues to increase meaningfully. Equity markets have continued to recover based on the view that consumption and corporate earnings will return later in the calendar year.

At the same time, we have also begun to see an increase in partisanship and political attacks of the response and impacts of decisions made at both the Federal and State levels. While this has been an unfortunate focus in the media, our eyes and minds remain fixated on data and information that will help us better understand where we are with respect to economic activity and the potential for recovery. We have begun to get a sense of how impactful government policy has been on the consumer.

During April, when the government began rolling out stimulus payments and benefits, the impact on reported personal income was a staggering 10.5% INCREASE which was fueled by $3 trillion in government transfer payments. Despite record layoffs, per capita income rose by approximately $6,500, while the savings rate jumped from an already high level of 13% to an amazing 33%. For perspective on this, a savings rate of 5% is generally considered “healthy”.

So, what does all this mean for the economic outlook? It comes back to how quickly each state will be able to safely reopen and permit activities that will drive economic recovery. The buildup in savings represents significant additional purchasing power for the consumer, as long as they feel comfortable spending. Alternatively, if the reopening hits roadblocks due to infection spikes that derail economic progress across large components of the economy, fear and worry may lead to ongoing purse string tightening. With several funding components of the CARES act set to expire at the end of July (unless extended), that will be a critical juncture for the unemployed looking for clarity on how they will continue to provide for their families.


To that end, we continue to monitor activities across the country and overseas to assess what the next few months will look like. Thus far, in the US, we continue to see states moving forward with their plans to reopen; while on a national level, both infection and mortality rates continue to decline. However, the areas of infection growth have shifted from the Northeast region to other states such as Alabama, Arkansas, California and North Carolina. Though the increases have not been of the same magnitude, the shift illustrates the need for a local approach to containing the spread of the deadly virus. To date, we are not aware of any state that has either taken a step back in their plans to reopen or hit the pause button. However, certain counties within states have extended restrictions based on their unique experiences. For example, last Friday the State of Virginia implemented mandatory facial coverings when in public indoor settings. We will be monitoring one of the more notable re-openings scheduled to take place on June 4th when Las Vegas will allow casinos to begin business activities, albeit with ample limitations. Crowds gathering in protest around the country over the weekend add an additional dynamic to maintaining orderly social distancing management.

On a global basis, infection activity has decreased among many of the European countries that were hardest hit in the early months of the pandemic. However, other nations have picked up markedly, including india, Brazil, Colombia, Mexico, Peru and several countries in the Middle East. Cases in China have also begun to rise again in the north, where a shared boarder with Russia has seen significant infection activity. China has since closed the region to contain the spread. After doing what is widely seen as an exceptional job in controlling the initial spread of the virus, South Korea is also beginning to see an uptick in activity that has forced them to close schools in a region that had only recently opened. In this case, the spread is being attributed to employees at a warehouse distribution center. South Korea was aggressive in addressing the initial outbreak