In 1995, the federal 55 miles per hour speed limit was repealed. There was no doubt, at the time, that this repeal would cost lives. Indeed, the Insurance Institute for Highway Safety has since estimated that roughly 33,000 Americans died between 1995 and 2013 because of the higher speeds that followed the repeal (Source: “Relationship of traffic fatality to maximum state speed limits”, Charles M. Farmer, Traffic Injury Prevention, 2017). However, implicitly Americans were willing to make the tradeoff.  In most circumstances, it should be perfectly safe to drive at 65 or 70 miles per hour on a highway and there clearly was a limit to how much freedom we were willing to sacrifice to save lives.

Today, COVID-19 is forcing us to consider a similar tradeoff between safety and freedom, but with far greater stakes on both sides. The U.S. death toll from the pandemic has already nearly reached 90,000, with the potential for many more fatalities in the months ahead, depending, in large part, on our collective restraint in social interaction. However, social distancing has also plunged the economy into a deep recession. Over the next few months, the pace of economic growth will be determined by the ability of businesses and consumers to operate under pandemic restrictions as well as Washington policies that either aid or hinder the recovery. However, from then on, until the time when we all, (hopefully), can be vaccinated, our economic fortunes will be determined, whether we want to admit it or not, by our willingness to trade safety for economic and social wellbeing.

Last week’s numbers on April retail sales, consumer prices and industrial production confirmed the extraordinary depth of the current recession. We now believe that real GDP could fall by more than 30% annualized in the second quarter, following a 4.8% drop in the first. That being said, there are already some tentative signs of recovery. In tracing out the initial pace of that recovery, it is useful to separate businesses and activities into three categories: those that can return to normal, those that can’t, and those that could, with a little ingenuity and some help from Washington. 

The production and sale of homes and autos should be among the activities that can open up, with social distancing, and data already show some movement in that direction. For example:

• According to the Mortgage Bankers Association, mortgage applications to purchase were down 10% year-over-year in the week that ended on May 8th, representing a substantial improvement from the week ending April 10th, when applications were down 35% year-over-year.

• Cox Automotive’s retail activity tracker, based on auto-dealer credit applications, was down 37.2% year-over-year on May 9th, significantly better than the 67% year-over-year decline it registered at the end of March.

In the week ahead, housing starts are likely to show a sharp decline for April. However, the National Association of Homebuilders Housing Market Index, due out on Monday, could register a small rebound for May following a collapse last month and should see further gains in the months ahead. U.S. construction employment fell by just over 1 million jobs between March and April but could well recover over half of those jobs by mid-summer.

In a similar vein, auto plants run by GM, Ford and Fiat Chrysler will be reopening this week, with safety protocols, in an important sign that most manufacturing should be able to operate even under social distancing. However, the toll of COVID-19 in many meatpacking plants underscores the continuing danger from the virus in manufacturing facilities.  

Conversely, there are many sectors, particularly in the restaurant, travel and hospitality businesses, where it is extremely hard to see a return to anything like normal in advance of a vaccine. This is borne out by data across a wide range of industries.

• Open Table still shows a 93% year-over-year decline in U.S. seated dinner reservations as of May 16th – not substantially different from the essentially 100% decline seen throughout April.

• STR reported U.S. hotel occupancy at 30.1% in the week that ended May 9th, an improvement over 21% in the week ending April 13th, but still down 56% year-over-year.

• TSA recorded a 91% year-over-year decline in airport passengers being checked on May 16th, not much different from the 96% year-over-year decline seen in mid-April.

In the middle are businesses that could reopen with appropriate social distancing but may or may not, depending on the economics of the business and consumer demand. Many areas of retail and consumer services fall into this category such as clothing stores, fast-food restaurants, particularly for take-out meals, and a wide variety of consumer services. 

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