The COVID-19 Crisis: Our Crushed Economy

Part I of a Projected Three-Part Series

by Ray Keating

The Keating Files – May 15, 2020

Make no mistake, the coronavirus pandemic and resulting government shutdowns of large parts of economy have had devastating effects across our economy, and the impact will not be quickly reversed. In fact, with misguided policymaking after COVID-19 has come under control (hopefully via vaccines and/or therapeutics), our economic ills could be further extended.

It pays to keep in mind that whenever the economy goes seriously off the rails, some kind of government action usually can be identified that either caused the mess or made it worse. In our current situation, the rapid spread of this virus, the threat to the lives of individuals, and the actual resulting deaths had their own negative consequences for the economy, and then governmental efforts – largely necessary though far from perfect (anyone who expects something even close to efficiency from government in anything doesn’t understand government) – have resulted in harsh economic consequences.

This column is not meant as an argument against what the government has done, nor as some kind of support for all that government has implemented. It’s also not meant to align with those arguing irresponsibly for an immediate, mask-less reopening of the economy with little concern, it seems, for ongoing efforts against spreading this virus. What follows is a look at key indicators describing our grim state of economic affairs.

First, real GDP (i.e., inflation-adjusted gross domestic product) in the first quarter plunged by 4.8 percent, with all major categories of economic activity declining dramatically, including consumer spending, business investment and trade. During the post-World-War-II era, there were only seven quarters when the economy declined by larger percentages.

Second, information coming in about the start of the second quarter points to an even larger drop in GDP. For example, retail sales plunged by 16.4 percent in April. That was the biggest monthly decline in a dataset going back to 1992. Industrial production – that is, the real output of the manufacturing, mining, and electric and gas utilities – tumbled by 11.2 percent in April. That was the largest monthly decline on record in an index that dates back 101 years. The drop in manufacturing production was even larger at 13.7 percent – again, biggest decline on record.

Third, jobs are disappearing at a frightening pace. Initial weekly unemployment claims over the first eight weeks of the COVID-19 crisis tallied up to 36.5 million. The story from the April employment report arguably was even worse. Perhaps most distressing was the fact that the employment-population ratio in April fell to the lowest level ever recorded in a dataset going back to 1948, plummeting from 61.1 percent in February to 60 percent in March, and then to 51.3 percent in April. 

Fourth, entrepreneurship is suffering as well. For example, the number of unincorporated self-employed individuals – an important measure of small business and startup activity – declined in April to its lowest level since January 1980. 

For good measure, the Census Bureau recently reported that business applications for tax IDs – one measure of business formation (though far from complete) – took a dive of 4.5 percent in the first quarter of this year. In addition, high-propensity business applications – which are businesses with a high likelihood to turn into businesses with payrolls – fell by 5.4 percent in April. These measures of entrepreneurial activity promise to fall further in the second quarter of this year.

Indeed, there’s nothing positive going on in the U.S. economy currently. We’re likely to see the steepest decline in economic activity during the second quarter of this year (that is, the current quarter) since the Great Depression.

After reviewing these grim numbers and trends, it’s critical to understand that these aren’t just some cold statistics detached from reality. Instead, they quantify reality. These numbers reflect or communicate real economic hardship for tens of millions of Americans across the nation. At the same time, these numbers do not negate the realities of mounting coronavirus deaths, and the understanding that the number of deaths could have been much worse, and still threaten to get worse. More on that in Part II in this series.

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Ray Keating is a columnist, economist, podcaster and entrepreneur.  You can order his new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York  from Amazon or signed books at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. Keating also is a novelist. His latest novels are  The Traitor: A Pastor Stephen Grant Novel, which is the 12^th book in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction. The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

Also, tune in to Ray Keating’s podcasts – the PRESS CLUB C Podcastand the Free Enterprise in Three Minutes Podcast