Coronavirus Tracker Update 5/16/20
Previous editions:  May 9, May 2, April 25, April 18, April 11, April 5

FIVE QUESTIONS. Last time I posed five questions for recovery; are job losses temporary or permanent; will health care recover; what will business openings look like; are job losses in less important industries; and what is the appetite for consumers to return to more regular functioning? We will address a few of those questions today, and save the health care questions for another day.
OVERVIEW: IT'S NOT QUITE THE GREAT DEPRESSION YET. Employment losses have been terrible, and are very likely understated as bad as they are. But what made the Great Depression uniquely bad was the length of time it persisted. The chart below compares the change in industrial production for the current downturn versus the Great Depression, the Great Recession and the early 1980s. I don't think it's sugar coating the situation to highlight the difference between those events and the current downturn.
PERMANENT VS. TEMPORARY JOB LOSSES. This chart doesn't exactly tell you anything about that. But it does show while continued claims remain high, initial claims have fallen dramatically. This move is a necessary first step toward recovery, although it may not actually be that step. It's good for initial claims to fall, but we need to start seeing continuing claims fall as well. The longer "temporary" job losses persist, the easier it is for them to become permanent.
PROBABLY SIX MONTHS UNTIL BUSINESS AS USUAL. In my ULI product council meeting this week, our economist said he's looking at 2 months of recovery for every 1 month of shutdown. A couple of surveys from PWC and Bloomberg suggest that's probably true. The surveys have also been taken over time so you can see how opinions have changed as the shutdowns have lengthened. But the bottom line is almost 75% of companies expect to be back to "business as usual" within six months.
PPP HAS GONE TO HARDEST HIT INDUSTRIES. Question #4 last week was if job losses were in categories that would be less likely to hurt home building. The first table below shows the top 25 job loss industries as reported by the TWC. I've highlighted the most likely to affect home building. I would bet the health care and education industries recover quickly, leaving oil, transportation and business services - and these are very likely to lag.

Most of what is left is retail and other service businesses - and although they are undoubtedly struggling, the second chart below from the US Census shows that nationally 74% of businesses who applied for PPP got it, and hotels, restaurants, medical offices and educational services were at 80% approval or above.
CONSUMER BEHAVIOR AND INSPECTOR JAVERT. Question #5 last week was about how quickly consumers would return to regular behavior. Research came out this week that showed Americans in nearly every state starting staying home before shutdown orders were issued. Another poll below shows 69% won't be ready to return to even most normal activities once quarantines are lifted. And yet this in spite of the actual risk from the illness being quite low for the majority of people: in Texas alone 50% of fatalities are among people over 75 - and 44% of all fatalities are from people residing in nursing homes.

Initial models vastly overestimated fatalities and hospital utilizations. We know these forecasts were released in part to direct government policy toward shutdowns. In Senate testimony yesterday it was also revealed that Dr. Fauci and the CDC have not considered any of the trade-offs of the shutdown policies they recommend - they are only focused on the coronavirus.

Government by hysteria has many consequences. It led us to spend $3 billion on 100K ventilators that we are now sending overseas because they weren't needed. It led Harris County to spend $17 million on a field hospital that was never used. It lead the government to expend resources trying to quarantine hundreds of millions of healthy Americans, while essentially ignoring the country's most vulnerable population: residents of nursing homes, where 30% of fatalities have taken place in the US, and some states the share is as high as 50-80%.

Consumer reluctance is a natural and expected consequence of experiencing a pandemic. It would have been more helpful to recovery had consumers not been primed with wildly exaggerated perceptions of risk. We are now starting to see versions of models that are more realistic in their assessments, and even media coverage that encourages people to be more careful but less afraid.

Consequently, consumer activity suggests we bottomed in April and are on the way back up, (in the second chart from Goldman Sachs), so perhaps people will become increasingly comfortable re-engaging in the economy.
  • NEW HOME INTEREST SURGING? One positive sign we are seeing locally are searches for new homes in Houston. I've showed this data from Google Trends before, and I'm still not sure exactly how predictive that it is. Google indexes search terms regionally, and on May 3 "new home" hit a one year high (100) in Houston, Texas. Searches have remained consistently above the 12-month average (~55) throughout the stay-at-home period. Complete data is not available for the week of May 10 yet.
  • SALES PATTERNS MAY BE NORMALIZING: The two charts below show new home sales by ISO week for 2019 and 2020 from the HAR MLS. It looks like we lost sales in week 13 (Judge Hidalgo's SAH order) but recovered some the next week. Also we had another big loss in week 17 (April 20 - perhaps because the order was extended?) but other than that very minor. Here's an ISO week calendar if you need a reference.
FOUND A NEW DASHBOARD. The Southeast Texas Regional Advisory Council (SETRAC) is a coalition of health care providers across the region. They have a great dashboard on their website showing regional totals for coronavirus. You can see the counties included on the left, so it's slightly larger than exclusively Houston - but it shows presently we have about 200 coronavirus patients in the ICU, and another 80 suspected. It also shows in the second chart we retain considerable unused ICU capacity.
SMALLPOX ALMOST DERAILED THE AMERICAN REVOLUTION. Did you know there was a smallpox epidemic in America from 1775-1782? British soldiers brought the disease which killed more American troops than they did. Washington tried initially to isolate sick soldiers and then sought to have them inoculated with a crude vaccine but was opposed by his medical advisors. Apparently after inoculation most people suffered a light version of smallpox and the doctors were uncertain the Army could care for them until they recovered. Washington overruled their medical advice, gave the vaccinations and infection rates fell from 17% to 1%.
FAUCI'S STAR TURN. Dr. Fauci gave riveting testimony to the Senate this week on the pandemic and reopening. Back in 1983, he was the author of a paper in the Journal of the American Medical Association which stated that AIDS might be transmissible through “routine close contact, as within a family household.” That turned out not to be true, of course, but in the meantime the media had widely propagated the myth, naturally setting off a wave of hysteria. Nevertheless, within months Dr. Fauci was promoted to chief of the National Institutes of Allergies and Infectious Diseases, a position he still holds today. I mention this not because it's disqualifying. There's nothing wrong with being wrong; I'm wrong A LOT. But it's a good example of how in fast-moving and rapidly changing situations anyone, even experts, can reach wrong conclusions that have disastrous consequences. That's why policy decisions should rest with people who can be held accountable for them.

"It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong."

-Thomas Sowell

Again, still doing webinars. The webinar covers the national and local economic situation and Location Strategy's current forecast for Houston, and I find I've been running about two weeks ahead of most media reports and government actions.

Stay well.

Scott Davis
Location Strategy, LLC