The Top Line

• As communities begin to reopen or continue implementing their reopening plans, signs of economic recovery are already being seen.

• As calls mount for an investigation into the initial outbreak of COVID-19, China is engaged in economic disagreements with countries around the globe.

• In lending a helping hand to small businesses, the Paycheck Protection Program has continued to get dollars out the door quickly while potential modifications to the program are being discussed.

• COVID-19, decreasing birthrates, and automation trends in the workplace. 

Signs of Improvement

As communities begin to reopen or enter their subsequent weeks of partial reopening based on their individual plans, signs of economic recovery are already beginning to appear.

• After taking a hit at the beginning of stay-at-home order implementation, interest in real estate listings are quickly rebounding (see above). Further indicating revived demand, competitive bids for homes are higher than before the pandemic, in part due to low supply. Likewise, confidence among home-builders is increasing amidst an uptick in mortgage applications.
• Elsewhere in the economy, auto dealerships are seeing a rise in sales, making them seek to expand their inventory to meet the rise in demand. Sales of U.S. pickup trucks in the South and Midwest have outperformed the market, providing accelerant in the tank for assembly lines that were slowed or turned off at the height of COVID-19 countermeasures.
• As the lockdowns end, people are travelling again. Last week, Southwest Airlines reported that bookings of new flights were outpacing cancellations in May. Meanwhile, as demand for plane travel rises, Delta announced they would be adding more flights than demand usually justifies to keep planes at 60% capacity or lower to guard customers’ health through social distancing.

Bull in a China Shop

As calls mount in international organizations and from individual countries for a thorough investigation into China’s initial handling of the COVID-19 outbreak, Beijing has reacted with trepidation amidst mounting pressures on multiple fronts.

• Before the COVID-19 pandemic began, poorer countries already owed China billions in outstanding loans, as part of its Belt and Road Initiative (BRI), which has seen some criticism of snaring countries in a debt trap. In a noteworthy case, in 2017 Sri Lanka agreed to a 99-year lease of a BRI-financed port to pay back loans made to it by China at double the interest rate it would have paid on a similar loan from the World Bank.
• Now, many poor countries whose finances are bleak with falling tax revenue from shuttered economies and rising spending on efforts to counter COVID-19 are unable to pay their debts to China. The guarantee of sufficient debt restructuring to avoid default is not assured as China faces the additional challenge of debt within its own borders.
• As Australia joins the chorus of countries calling for an inquiry into China’s initial handling of the COVID-19 outbreak, its trade relationship with China has become a point of contention. China has already levied tariffs on Australian barley and beef with more restrictions on other Australian products possible.

Myth vs. Fact

MYTH: China is taking the leadership initiative away from the U.S. in developing countries by using its BRI funding as a spearhead to make inroads with those countries’ governments.

FACT: As China continues to use the BRI to keep poor countries reliant on its financing even as they reel from COVID-19, U.S. led multilateral institutions are offering alternative solutions. The World Bank worked rapidly to deploy $160 billion in resources to help developing countries protect their most vulnerable citizens while the International Monetary Fund mobilized nearly $1 trillion in resources to help developing countries' governments fight the economic effects of COVID-19.

Paycheck Protection Program Hits the Mark

When COVID-19 forced small businesses to close doors, the Paycheck Protection Program (PPP) of the U.S. Small Business Administration (SBA) stepped in to give workers and businesses a lifeline as their revenues declined. Along with SBA Economic Injury Disaster Loans, the PPP has met the challenge (see above).

• As the second tranche of PPP funding is disbursed, the SBA reports that the majority of loans are less than $1 million and that community banks with less than $10 billion in assets account for 43% of the loans made.
• On Thursday, May 21, the Senate began expedited consideration of a bipartisan bill to extend the period PPP loans could be used to cover expenses. The bill would extend the period expenses are covered to sixteen weeks from the current eight weeks and allow PPP funds to be used for measures to mitigate COVID-19 risk to employees and customers.

Disruption of the Week

A is for Automation – Looking at the future of work as COVID-19 accelerates job automation and decreasing birthrates lead to a smaller workforce.

• As workers return from temporary layoffs due to COVID-19, there is a growing concern that jobs that were traditionally safe from automation are now potentially at risk given the new nature of social distancing and safety in the workplace.
• This impact of COVID-19 on the workforce comes at a greater time of U.S. birthrates falling to record lows and the total number of births dropping to its lowest point since 1984.
• While lower birthrates certainly have negative fiscal impacts, an increase in job automation arising from COVID-19, combined with the potential of a shrinking workforce, could lead to even greater economic disruption, long-term unemployment, and challenges to future economic development.
• Mitigating the effects of job automation and taking the short-term lessons that we learn over the next few months and years will be critical to full and productive employment and long-term economic stability.
• While President Trump and Congress have taken steps to study the future of work and help workers reskill and adapt, more needs to be done to ensure displaced workers do not become permanently unemployed.

Further Reading

• As the housing market recovers after COVID-19, declines in homeownership rates among younger Americans and its effects on family formation will likely persist. Senate Republican staff of the Joint Economic Committee have found a potential culprit: unintended increases in house prices resulting from property tax and mortgage interest deductions that price younger buyers out of many markets.