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Tags: Coronavirus | economy | virus | pandemic | recovery | crisis

Start Behaving Like It's a Crisis or We'll Damage Economy Forever

Start Behaving Like It's a Crisis or We'll Damage Economy Forever

(Ilkin Guliyev | Dreamstime.com)

Joel L. Naroff By Friday, 17 July 2020 12:26 PM Current | Bio | Archive

INDICATOR: June Housing Starts and Permits and July Mid-Month Consumer Confidence

KEY DATA: Starts: +17.3%; 1-Family: +17.2%; Permits: +2.1%; 1-Family: +11.8%/ Sentiment: -4.9 points; Expectations: -6.1 points

IN A NUTSHELL: “Construction is picking up, but it is still well below the levels we saw early in the year.”

WHAT IT MEANS: The housing market is leading the recovery, something that has become clear in the latest data for construction and sales. Construction of new homes soared in June and it was equally distributed between single-family and multi-family activity.

However, for the quarter, starts fell by nearly 30%. Construction of single-family units was down about 25% and 40% for multi-family buildings. As for permits, they continue to run higher than starts, indicating construction activity should improve over the next few months.

The University of Michigan’s mid-month reading on consumer sentiment dropped sharply in July. Expectations were off much more than current conditions, which may be a sign that the virus resurgence is starting to take a toll on hopes that the economy can recover quickly.

The report pointed out that “(t)he promising gain recorded in June was reversed, leaving the Sentiment Index in early July insignificantly above the April low (+1.4 points). The expectations index is just 0.4 points above the April bottom. Those levels are so low, they raise questions about how much consumers will spend going forward.

COMMENTARY ON VIRUS STRATEGY (or lack thereof): Today’s reports were in the “some good news, some bad news” column. The problem is, the bad report may be the more important one, as the confidence numbers represent concurrent data while the housing numbers are for the past.

Not to beat a dead horse (though I have every intention of doing so), there is no national strategy to deal with the virus. While testing has soared, the capacity to process those tests has not kept up and most people are waiting anywhere from five to ten days to get an appointment and then get the results back. What does a negative report mean if the test was done a week or more earlier?

Worse, it means that contact tracing is largely impossible and standard methods to slow the spread are becoming useless. When governors start asking their citizens to pray, you know we are in real trouble. The lack of guidance is also creating massive problems for school boards who are struggling to come up with reopening plans.

It is frustrating. There was a period this spring where progress was being made and the opportunity to get ahead of not just the curve but the planning for a possible resurgence existed.

It is not as if there weren’t warnings that reopening too soon could lead to major problems. But again, the lack of a coordinated national policy has brought us to this point and the implications are dire.

People are at war over masks. Governors are at war with local authorities over reopening plans. Businesses are doing what they can to provide the right environment for their customers but there are no generally accepted policies (read national guidance) they can fall back on. Thus, they are under attack by customers for whatever approach they take.

This is harming the economy, slowing the recovery and with the virus resurging, it is beginning to weigh heavily on household confidence. It is hard to believe that households will be spending like crazy going forward if they are really worried about the future. That means we will likely need an even bigger government intervention in the economy than is being proposed.

Unfortunately, the massive amount of government funds already spent and the huge amounts that will have to be spent going forward are likely to put governments at all levels in straightjackets. For example, the federal government is likely to run a budget deficit of four trillion dollars this fiscal year, which ends on September 30th, and possibly two or even three trillion dollars next fiscal year.

The idea that there will be money to fund massive infrastructure projects that will not come on board for possibly years is crazy.

At every level, there will have to be major program reductions as well as tax increases. We may have to do everything that is necessary to keep out of a depression right now, but as economists like to say, “there is no such thing as a free lunch”. That is what the government welfare programs, especially the CARES Act, that includes the PPP and the additional unemployment payments, as well as the Fed’s intervention in the markets, amount to.

To put it bluntly (not that I am sugar-coating things): I am worried about the present and even more scared about our economic future.

Unless we start behaving as if we are in a real crisis, we will damage the capacity to grow for years if not decades to come. You can call me an alarmist; I think I am a realist.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

© 2021 Newsmax Finance. All rights reserved.


JoelNaroff
To put it bluntly (not that I am sugar-coating things): I am worried about the present and even more scared about our economic future.
economy, virus, pandemic, recovery, crisis
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2020-26-17
Friday, 17 July 2020 12:26 PM
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