Coronavirus Economic Crisis (Pt. 2): Unemployment, Health and Singapore
Are we going… YES. Recession is
already here. Entire industries have come to a halt, unemployment rates are
skyrocketing, countries are enforcing stricter and stricter lockdown laws, and Coronavirus cases are on the rise globally. The question isn’t anymore if we
are going into recession, or when we are going into recession, the question to
ask now is, how bad will it be? The following article will analyze the U.S. and
global economic situation through the lens of unemployment and a coordinated health response, while explaining the unique importance of Singapore.
United States Unemployment Impact
One of the first major weekly indicators showing the
overall impact of the Coronavirus has been and will continue to be the rise in
unemployment benefit filings. Every Thursday, the Bureau of Labor Statistics in
the United States releases the number of individuals who had filed for
unemployment in the previous week, and the numbers are rapidly rising. Over the
past three weeks, unemployment records have been broken. On March 12th
the BLS reported that approximately 30,000 people in the United States had
filed for unemployment. One week later, on March 19th, this number
rose 33% in 7 days to 281,000.
The previous highest U.S. weekly increase in
unemployment filings was approximately 695,000 back in 1982. This was shattered
as on March 26th, as jobless claims exceeded Goldman Sachs and JP
Morgan estimates, with the week’s official number being 3.25 million filings.
One week later, on April 2nd, an additional 6.87 million individuals
in the U.S. filed for unemployment, and just last week, the pattern continued on
April 9th as another 6.61 million individuals filed jobless claims. In just 21 days,
the number of people filing for unemployment has skyrocketed from 211,000 to two
consecutive weeks above 6 million, which is a 3100% increase weekly, never
before seen in U.S. history. The weekly jobless claims trend can be seen in
figure 1 above tracing back to 1967, and the chilling spike of the last three
weeks seem to statistically mirror the grueling Mt. Everest in the face the
U.S. economy’s last fifty-year history. The facts are these, in three weeks
16.8 million people have filed for unemployment, which is 10% of the current
U.S. labor force. That brings the estimated overall unemployment rate to around
14.4% but due to lags in the economic data releases as official statistics, the
true overall unemployment is unknown. According
to William Rodgers, former chief economist at the U.S. Department of Labor, the
U.S. unemployment rate has risen from 3.5% to 17% in just three weeks. The
exact figure will be unknown for a while, but the reality is this: The U.S.
economy has surpassed the level of unemployment experienced at the peak of the
Great Recession in less than 21 days. This is completely unprecedented. The
unemployment at the height of the Great Recession was 10% in October 2009, and
this took 18 – 24 months to develop.
It is
important to put these numbers in perspective to truly understand the scope and
desolation embedded within these numbers. Imagine in week one, every single
teacher in the entire country loses their job in both public and private
schools. In week two, every single person involved in any type of transport
industry is laid off. No trains, no subways, no planes, no ferries, no buses,
no transportation. Now you have a situation where you have no teachers in any
schools and no transportation workers. To top it off in week 3, every financial
institution shuts down and lays off every single worker. Local, state, and
national banks countrywide close, brokers, credit agencies, investment
companies, securities contractors, insurance providers, and wealth management
firms all closed, everybody is told to go home. Imagine your daily life in this
world where you have no teachers, no transportation, and no finances services.
This is what has happened in the last 21 days. There are approximately 3.5
million teachers in America in public and private schools, the transportation
industry employs around 5.2 million individuals and the financial services, and
insurance industries employs approximately 6.5 million people, all totaling
around 15.5 million jobs. This is still under the number of jobless claims
experienced in the last three weeks, which was approximately 16.8 million jobs.
If you want to paint this picture from a
global perspective, envision the entire Australian and New Zealand workforce
being laid off in just 21 days, 15.6 million people without a job, and two
economies decimated.
Now, what are the longer
unemployment projections for possibly the next three months and onward? In a worst-case
scenario, in just the next three months, the U.S. federal reserve of St. Louis
has forecasted that just the second quarter (April – June) will see 47 million
layoffs. This translates to an unemployment rate of 32.1% by the end of June.
During the Great Depression, unemployment peaked at 24.9% in 1933, more than
three years after the original stock market crash in October of 1929. Expert
forecasting suggests that: the U.S. economy will far surpass the Great
Depression levels of unemployment and reach a standing rate of 32.1% in just
three months. The St. Louis Fed has explicitly said that "These are very large numbers by
historical standards, but this is a rather unique shock that is unlike any
other experienced by the U.S. economy in the last 100 years.” These are unprecedented
and frightening times, as uncertainty seems to be prevailing, but a full –
rounded and full informed scope is important to remember.
Crucially
these estimates did not account for the impact of the $2 trillion stimulus
package recently released by the U.S. government or any future packages they
may release. This means that while the stimulus package released by the United
States will slightly reduce the impact of the unemployment rate and the
negative impact on the economy, but it is not a magic solution. To evaluate its
potential effectiveness would take another five pages. Still, I do intend in
the next few weeks to analyze the U.S. stimulus package or hopefully packages,
in tandem with the actions taken by other governments. But the important thing
to understand at this moment in time is that it will have a positive impact,
but the stimulus package will not be a cure. For companies and individuals suffering,
the stimulus is designed to keep them afloat during this time of crisis until
recovery starts. Acting as a bridge while they receive no income or investment.
Similar to a lifeboat designed to keep you alive until you reach land or are
rescued.
Global Unemployment Impact
Globally
there has also been a massive impact on unemployment, “currently, more
than 4 out of 5 people (81%) in the global workforce of 3.3 billion are
affected by full or partial workplace closures because of COVID-19” according
to the International Labor Organization. The report estimated that
internationally there are 1.25 billion currently employed individuals working
in sectors identified as being at high risk of “drastic and devastating”
increases in layoffs and reductions in wages and working hours.
Australian Treasurer Josh Frydenberg
said more than 800,000 businesses have already
applied for the so-called job keeper program, a program part of Australia’s
stimulus packages aiding small businesses. “There’s definitely going to be an
uptick in unemployment and a significant reduction in growth,” according to
Frydenberg, with experts believing that unemployment could grow to 10.1%.The United Kingdom, according to Oxford University, on
par with the United States face the expected probability of reaching a 30%
unemployment rate.
In Spain, in March 833,979
lost their jobs, a record number in terms of jobless claims for the country, accounting
approximately for 3.5% of the Spanish labor force in just four weeks. This is
on top of their already record-high 14% unemployment rate, which is among the
highest in the developed world. Austria’s
unemployment rate has jumped to 12%, the highest since the aftermath of World
War 2. IN Germany, 470,000 companies applied for wage support in March,
suggesting that a near 5th of the German workforce will experience
reduced hours.
Across the other side of the world
in Asia, Thailand has seen 23 million people (one – third) of its workforce,
apply for government cash handouts, the program is expected only to be able to
cover 9 million. In China, despite statistics releasing an unemployment number
of 6.4%, raging debates have erupted on the credibility and accuracy of these
numbers.
According to Liu Chenjie, chief economist at
fund manager Upright Asset, a privet asset management firm in Hong Kong, 205
million workers have been driven into "frictional unemployment,"
where individuals want to work but cannot or are unable to return to work. If
this were true, this would represent more than 25% of China's 775 million-strong
labor force. Based on Lieu’s calculation, the Chinese services sector has been
hit the hardest with 180 million jobs disappearing, mainly because of “consumers’ willingness and ability to spend.”, which has been sharply curtailed
by the pandemic.
From
these numbers, it seems that the United States and China have been the hardest
hit, but it is evident that the impacts are being felt throughout global
economies. Worse times are most likely still to come as the pandemic is still
in its early stages, but it is essential to ask and understand, what does
the current situation mean for the long term and the recovery? When will we
reach land, or be rescued and start to see a restoration of the U.S. and global
economy? This heavily ways on the health response.
Importance of the Health Response
The reality of the matter is that the
world is facing a global health crisis, which is causing an economic crisis. It
is because of this reality that it is crucial to understand that to reduce the
long term economic and health consequences of the COVID – 19 pandemic, a fully
enabled global public health response is needed to reduce the severity of the
long term financial impact. While this does not mean that in the short term, we
won't experience suffering or pain across various global industries, it does mean
that if the appropriate and severe short term action falls short of what is
desperately needed, the extended consequences could be worse than ever
imagined.What do I mean by this? It is the health response that matters for us to get out the other side of this pandemic, financially and medically. According to a new study by world-class doctors and researchers at the University of Sydney, in Sydney Australia, eighty to ninety percent of the country's population needs to strictly follow and practice social distancing. If only seventy percent of the population follows the social distancing policies, as seen in figure 2, the curve will not flatten. Infection rates will still spike, and the virus will still keeping running rampant. Furthermore, if these policies are followed, the modeling says that the virus infections can be brought under control within a minimum of three to four months.
While this model has been
specifically modeled on the Australian population using approximately 24
million software agents, let us see how this model and its predictions compare
to what we have seen so far from around the world.
Epicenter: Wuhan,
China: The original epicenter of the outbreak, experienced its first cases in
December 2019, before identifying the outbreak and going into lockdown
quarantine on January 23
rd. Having a history of social control over
its citizens, China enforced its strictest policies on the citizens of Wuhan.
“Apartment compounds allowed people to go
in and out through one gate, each household could only send one person out once
every three days to purchase groceries, and everyone's temperature is checked
upon entrance.” But despite these substantial measures, numbers continued to
rise, and therefore the government increased its restrictive policies. “Hubei
government ordered community officials to began enforcing "the
strictest, around-the-clock, closed management" of all residential
complexes, banning the private use of cars, forbidding residents from leaving
their apartments without permission and requiring purchasers of cold medicine
to disclose their temperature, address and identification number at the
pharmacy.”
After 77 days or 11 weeks of complete lockdown, Chinese officials lifted
partial restrictions in Wuhan on April 8th, allowing Wuhan residents
to travel domestically and open some businesses. Small businesses and factories
in Wuhan started opening last Thursday, March 30th, ten weeks after
the shutdown. While its infection rate has reportedly dropped to near zero,
only partial restrictions have been lifted as Chinese officials stay vigilant.
Interesting
Mention: South Korea: South Korea and the
United States reported their first case on the same day, the stark difference, South
Korea was ready, the U.S. wasn't. South Korea had a battle with Middle East
Respiratory Syndrome (MERS) back in 2015, which led to mass testing, tracing,
and quarantining of 17,000 people, which led to the country squashing the
disease in 2 months. Still, MERS only infects one additional person; therefore,
its infection rate is much lower than the Coronavirus. After MERS, the
government very quickly realized testing alongside hospital prevention and
control measures were extremely vital in responding to pandemics. Legislation
was also passed promptly in the MERS aftermath strengthening the country’s
ability to respond, such as authority given to the government to collect mobile
phone, credit card, and other data from those who test positive to reconstruct
their recent whereabouts. As a result of these changes, South Korea is very
uniquely equipped and ready for the Coronavirus having widely available
testing, prevention protocols, quarantine actions, and accurate tracing
methods. These measures have enabled them to implement a swift and effective
response resulting in only ten thousand cases and 186 deaths and sending the
country only into partial lockdown closing schools, religious gatherings,
outdoor rallies, daycare centers, and some businesses.
Case to
watch: Singapore. Singapore reported its
first case on January 24th, 2020, one day before Australia and
immediately took action. Similar to South Korea, Singapore learned many lessons
from a previous pandemic, in their case, the SARS outbreak in 2002 and 2003.
Within three days of its first case, Singapore had implemented thermal scanning
of people arriving at Changi International Airport, and on February 1st
barred all visitors who had visited China in the past 14 days. Just 16 days
later, Singapore had 75 confirmed cases and issued a “stay at home” notice,
which they track on citizen’s phones. Every few hours, citizens will receive an
SMS and are required to click on a link revealing their location, the
government even had people knocking on doors routinely preventing people from
"gaming" the system and having a friend or family click the link from
home if they leave. Like South Korea, Singapore had in place protocols, wide
testing availability and were well prepared for COVID – 19, they currently only
have six deaths and 1400 cases and have been praised for their initial response
by the World Health Organization.
Here is the interesting part about
Singapore. Friday, April 3rd, prime minister Lee Hsien long
announced new stricter lockdowns lasting until May 7th, closing
schools for the first time and most non-essential businesses including gyms, museums,
and workplaces while grocery stores, clinics, and banking services will stay
open. Lee stated that “Looking at
the trend, I am worried that unless we take further steps, things will
gradually get worse or another big cluster may push things over the edge.” This
has all been done in fear of a second wave, making Singapore as a country and a
case study a very imminent leading indicator for the course that COVID – 19
takes in other countries.
If a country such as Singapore, whose initial response was among the best if
not the best in the world can prevent a second wave with its preventive
measures, this is excellent news for the rest of the world. It means that COVID
-19 can be managed effectively once brought under control, but if a second wave
breaks out, this could potentially be indicating even bigger disaster for the
rest of the world. The last devastating global pandemic was the Spanish flu
back in 1918, which, although was born in a time under very different
circumstances, arrived in three different waves as the virus mutated, killing
between twenty and fifty million people globally. Therefore, if Singapore
experiences a second wave, this would mean that even if countries currently
facing war like numbers such as Italy, Spain, the United States, and the United
Kingdom, were to bring COVID – 19 under control in the following months, they
could still be potentially vulnerable to a second or third wave, threatening to
bring even more devastation.
From a health
perspective, the lesson is this, citizens and nations need to abide by strict
social distancing laws for a minimum of three months and then reassess the
situation before lifting restrictions. If these precautions are not taken and
enforced, the devastation we have already seen in terms of infection and mortality
rates will exponentially grow, spiraling the virus even further out of control.
This will require more extended shutdown periods to contain the virus, meaning
that instead of having a painful 3 to 4 months of total lockdown, opening the
economy to early could completely reset the clock and erase the progress
already made. Ultimately this could result in a six to twelve or in a worst-case
scenario eighteen-month ongoing battle with the virus with constant opening and
closing of the economy. This type of situation will result in health and
economic devastation not only never experienced before in modern history but well
beyond our wildest imagination. If this becomes a reality, the COVID – 19
recession will be much worse than the Great Depression, and generations will feel
the effects for years to come. Moving forward, what do we do, and what do we
look for to avoid devastation?
Takeaways for the Future:
Enforcing social distancing and
lockdown laws, it's a crucial step in fighting COVID – 19 and reducing the medical
and economic impacts. In terms of unemployment, the next three to five months
will see significant increases in numbers in the U.S. and globally, but
dependent on the health response, those numbers will hopefully slowly start to
stabilize. For a best-case scenario, watch the development of Singapore. If
Singapore fails, countries facing a crisis such as the U.S. and Italy,
currently in their "first wave," need to be extremely vigilant and
could see a fierce battle in the next twelve to eighteen months. As second and
third waves could possibly be highly threatening, not only to unemployment and
economic figures but to the survival rates of the globe’s 7.7 billion individuals.
If Singapore can control and contain what fears to be a possible second wave of
the virus in the next two to three months, this will be an incredibly positive
sign for the rest of the world. This will mean that future waves can be
averted, and the virus can be controlled in three to five months if the
appropriate measures are enforced and followed.
Finishing on a positive note, it is
understood that we are facing exceptionally challenging times as individuals,
families, friends, countries, and economies. It is important to remember that the
world has incredible doctors, brave nurses, intelligent researchers, courageous
leaders, and, most importantly, strong and resilient individuals. I believe that
we can, and we will make it to brighter days. The power of humanity and our
ability to stand strong in the face of adversity, which has been underestimated
many times before, will win. While we might not always see the light ahead, we
will come together, fight together, and emerge on the other side of this global
challenge united and stronger than ever before.
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