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

WELL, THAT DE-ESCALATED QUICKLY. The coronavirus is real and deadly. One of the problems, though, in developing an appropriate response is having good information on the threat. Governments have been using the University of Washington's IHME model to project the impact. There’s a site up where you can compare the projections from each successive release of the IHME model. A chart from that website is below showing the forecasts used to make shutdown orders, and where the forecasts stand today. How much time and money have we spent fighting a chimera, instead of the real risks and dangers the virus presented?

Some will insist the change in these curves represent the success of social distancing. I offer this quote from the paper released with the March 26, 2020 forecast:
  • The estimated excess demand on hospital systems is predicated on the enactment of social distancing measures in all states that have not done so already within the next week and maintenance of these measures throughout the epidemic, emphasizing the importance of implementing, enforcing, and maintaining these measures to mitigate hospital system overload and prevent deaths.

So, social distancing was factored into ALL of these forecasts. I’m looking here at hospital bed “overflow,” since that’s what flattening the curve was supposed to manage. Texas is reporting 1,682 hospitalizations.  The state has 58,000 hospital beds.
I guess it's too much to ask for the scientific clarification for extending the Harris County order to May 20. When TMC shows 158 patients in the ICU with COVID-19. That leaves 560 beds capacity, and 1,200 beds surge capacity.
THE FIGHT NOW IS AGAINST THE RECESSION. I did this analysis a few weeks ago and I've debated whether or not to include it -- but it's why I've been banging the drum so loudly on re-opening.

Since March 1, almost 2 million Texans have been laid off. For scale, there are only 3 million jobs in the entire Houston MSA. The chart below shows the annual change in Houston MSA GDP from 2001-2018 (2019 is not available) and a forecast for 2020 by Location Strategy based on estimated Houston job losses (+/-385K) and the industry multiplier effects across the economy.

This suggests a loss of almost $31 billion and is larger than any economic contraction since 2001, and likely since the 1980s. However, I believe this represents a worst case scenario in that it assumes no job recovery and little impact from stimulus efforts.
The model relies on the impact of an employee in one industry on another (eg. 1 job in upstream energy = 3 jobs in the economy). It's the same technique that's used to determine, say, the economic impact of the Super Bowl on a city, simply in reverse.

So the following should happen:
  • Economy-wide losses should be offset to some degree by unemployment payments and stimulus efforts like the PPP
  • While I suspect restaurants, etc, lose more money at 25% operations than they do at 0%, this is a short term situation and businesses will hire again
  • Oil will stabilize for the reasons I've mentioned here over the last two weeks, and because China will already be operating as we recover, giving us a demand lift that they didn't have.

The chart below shows the GDP impact of job losses; the x-axis shows the percent of presently lost jobs - so 50% means we recover half the jobs lost this year, and the impact is between about $12-15 - which places Houston in recession like 2002. That was not a good year coming after an oil collapse, 9/11, Tropical Storm Allison, a war and the dot-com collapse. But it was a decent year for housing. I don't have a good vision yet on what percentage I expect to see recovered; that depends primarily on the willingness of customers to return to businesses and how government reacts to a second wave if there is one. But I'm fairly confident we'll see something on the left-hand side of that chart. A hard year, but not one where we are staring into the abyss.

Another reason I am less worried about recovery is that people are overcoming the inability of leaders who are too worried about bad press: mobility data from Apple and others show people are acting as if the shutdowns are over, whether the government has declared them to be over or not.
  • APRIL SALES STILL OFF ABOUT 20% OVER LAST YEAR. The bar on this chart for April 2020 shows sales at about 70% of last year. I made it yesterday. Thursday it was 68%, this morning 73%. I suspect it will end up around 80% by the time all sales are reported.
  • CANCELLATIONS HIGH BUT SLOWING: HAR shows cancellations on new sales are now running at 12% ahead (in the first four months) of last year. But may be returning to normal. It looks like the bulk of cancellations took place in the last week of March and first two weeks of April. There are 2,538 pending new home sales in the MLS. This may even overstate your experience; I was talking with someone at a major builder this week who could tell me the "story" on each of their cancellations. Just the fact that he knew them tells me they are lower than people have expected.
  • A BRIEF THOUGHT ON OIL. These nuggets may not exactly be scientific, but I've noted here and in previous weeks that oil demand seems to be off roughly the amount used for personal transportation. It's not exactly equal but it's close enough that widespread resumption of driving will help oil prices recover. Foursquare reports that gas station visits in the Midwest and in rural areas have already recovered to pre-coronavirus levels, and while urban and suburban visits still remain low, they are increasing. This is another sign that we are starting to see things move in the right direction.

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