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WHW: Markets Happy, President Optimistic

The week ended with once again everything that involves the coronavirus falling neatly into place: the stock markets end a stellar string of positive trading days, the president said we don’t even need a vaccine and at least 45 states have some re-openings underway despite the obvious risks.

And why not? Because Friday’s jobs report turned in the worst picture of job loss, unprecedented and Great Depression deep? Investors and traders laugh at record joblessness these days. The Dow industrials finished up 1.9% or 455 points. The week was so good, in fact, the Nasdaq is up 12% for the past month and higher than at the start of the year.

Inside the White House only two people tested positive for the virus the past two days. President Trump was in such a good mood he told a roomful of Republican lawmakers, “This is going to go away without a vaccine. It’s going to go away and we’re not going to see it again.”

That hasn’t happened fast enough for the head of the Food and Drug Administration, a member of the White House’s Corona Virus Task Force. He’s been forced into a two-week self-quarantine by coming into close contact with someone else who tested positive.

And around the country states that aren’t already open to some extent set dates to join the crowd from now on. Almost two dozen have virus cases going up. A few had their worst days ever. Naturally, most governors warned their citizens to take care of themselves even though in some cases malls are reopening.

People who are in a sour mood because they don’t know when or if their employers will ever call them back to work might find it hard to see the reason for all the good cheer and optimism.

They might wonder when the rest of the world is going to wake up and see the abyss they’re looking at. They have a sympathetic friend in a long-time analyst for mid-sized businesses: “We have to be utterly realistic about this because there is political fantasy out there and then there is economic reality. It is going to be years before we recover all of these lost jobs and as much as 25% of them aren’t ever coming back.”

Those are the words, quoted in Politico, of Joe Brusuelas, who works as chief economist for RSM, fifth-largest accounting firm in the nation. Since when do accounting firms have chief economists like banks and securities firms? We’ll have to ask Diane Swonk, the famed macroeconomist who now works for Grant Thornton, RSM’s competitor, also in Chicago.

Brusuelas’ Twitter and Instagram feeds and his blog are easy to find. They’re full of this thing he calls “realism”, so out of step with current thinking in the United States where politicians run health policy during a pandemic.

When he wrote those words, he hadn’t yet seen the day’s April unemployment report, with its 14.7% unemployment rate, its 20.5 million fewer people on payrolls. After he saw how bad it was, he turned around and said it still understated the extent of the joblessness tragedy.

The unemployment rate, according to a footnote in the Bureau of Labor Statistics report, would have been around 20% except for all those out of work who weren’t yet looking for a new job and so couldn’t be counted. Where do you look for a new job when more than 30 million people are collecting unemployment benefits?

Now why would Brusuelas say 25% of the jobs lost aren’t coming back? That’s a heap of people, maybe 5 million or 6 million and maybe more when all those who lose jobs this month are added.

Companies whose customers are cautiously staying home will be looking for ways to cut costs, particularly as the virus keeps infecting more people. With unemployment pay now including a $600 a week bonus thanks to the CARES Act it will be easier to justify replacing them with machines or getting along without them.

Which brings the abyss into focus. The regular unemployment benefits, the Pandemic Unemployment Emergency Assistance and the Pandemic Unemployment Assistance are set to all be used up by the end of the year.

The Paycheck Protection Program pays employers to keep people on the payroll. It lasts for eight weeks from the time the “forgivable loan” is extended.

There’s also an alternative for employers, the Employee Retention Credit, a tax credit worth a half the salary expense. Soon the Federal Reserve will be helping larger companies with its Main Street lending facility. It lasts until September 30.

By the time Congress passed the CARES Act, millions of workers had already been let go. The idea that employers could be encouraged to keep people on payrolls hasn’t prevented double-digit unemployment rates.

Perhaps later in the year, if the virus is still a big enough threat to keep a lot of people mostly at home, there will be a vast new infrastructure rebuilding program in place, replacing bridges, airports and highways that will create many thousands of new jobs.

That army of contact tracers, kept busy tracking down every single person suspected of being infected, may employ tens of thousands more.

If Phase Four virus response legislation is ever passed it could expand state and local hiring to provide more health care specialists, hospital workers and reinforce first responders.

It’s still early days. We have more time to indulge ourselves in political fantasies.

Denny Gulino

Julie Ros

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