Congress Still Debating On Stimulus

Back To School

It’s tough to overemphasize how important having kids go back to school is. Online college isn’t an issue. Some people believe going to college is about who you meet, meaning if you can’t go it’s not worth it. However, there are tons of people waiting to enroll at a prestigious university even if it is online. That degree still has value. 

An alumni network will always exist. You’ll be able to meet with them in person when this virus is fully contained. In-person school for children is much more important as you can’t replace learning how to interact with others online. Life will largely go back to normal when this is over, so these skills will be vital.

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Children going back to school is hugely important to the economy. Back to school is the 2nd biggest shopping season of the year. As you can see from the chart on the left, caring for children not at school or daycare was the 3rd biggest reason people didn’t work. It’s no surprise the chart on the right shows the percentage not at work because they need to take care of their kids has more than tripled from normal levels. 

It’s not possible to work from home full time and take care of children if they are young. Single parents and those who can’t work online are in a bind. 15% of the labor force is in at least 2 of these 3 categories. This means when schools open up, the labor market will improve significantly. That would be an upside surprise for those focused on the current stagnant recovery in the labor market.

Highly Educated More Likely To Work From Home

The more education a person has, the more likely they are to be working online because of the virus. Unfortunately, the people who can least afford to lose their jobs or pay caretakers are the ones who need to. Specifically, 31.3% of workers worked online because of COVID-19 in June. 63.3% of workers with an advanced degree worked online. Percentages fall from there as 48% with a bachelor’s degree worked online.

12.6% of people with a high school degree worked online as they work in the ‘old economy’ such as physical retail. Finally, just 4.8% of people without a high school degree worked online. These workers were doing fantastically right before the recession as they benefit the most on a relative basis when the labor market is full. 

Now it’s back to square one for them. They won’t thrive until the labor market fills again. Although, obviously the labor market will improve for them too as the economy reopens.

Debate Hasn’t Led To Results Yet

It's surprising that stocks didn’t decline on Monday since there wasn’t a stimulus deal this weekend. Congress’ deadline is this Friday as that’s when it goes on recess. Congress is like a college student. It waits until the deadline is near to make a deal. If a deal is close, they will extend the deadline, but Congress doesn’t want to work when it’s supposed to be in recess. 

White House chief of staff stated, "I'm not optimistic that there will be a solution in the very near term." Sometimes that’s posturing and sometimes negotiators truly mean a deal isn’t close. Most important issue being discussed and a key holdup point is weekly unemployment benefits. That’s what most will look for when reports come out that a deal has been made. (It’s a lock there will be a $1,200 stimulus check like last time).

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The chart above shows the importance of unemployment benefits. From February to June, wages and salaries accounted for a 4.1% decline in disposable personal income. Income rose 5.4% mostly because of unemployment benefits. There is the potential for unemployment benefits to last until the end of the year. That could provide people with a smoother recovery than if they end in July. There will be a point where stimulus is taken away, but it makes more sense to delay that until the virus is fully under control.

Opinions On Vaccine

The chart below shows when healthcare industry leaders think a vaccine will be ready. Clearly, we don’t know when one will arrive, but the leaders tell us what the consensus thinks which is valuable. Firstly, they know more about it than most people. 

Secondly, when news comes out about the timing of a vaccine, we can use this survey to judge if it’s an upside or downside surprise. As you can see, only 26% said it’s coming by the first half of next year. The most common answer was the 2nd half of next year, which means 67% said it will be here by the end of the year. 

If you are a long term investor and you expect a vaccine to allow the economy to go back to normal within 18 months, it makes sense to ignore the impacts of the virus.

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Cases Continue To Fall & Deaths Might Be Peaking

7-day average of the number of new cases per day continues to fall. There were 48,619 new cases on Monday which is down from last week’s reading of 61,770. A decline in new cases per day appears to be picking up steam. This means deaths per day will decline quicker by the middle of August. 

With deaths, cases, and hospitalizations all falling, there should be more optimism on the economy. That means we can expect consumer confidence to perk up in August. There were 568 new deaths on Friday which was slightly down from last Monday’s 597. 

Most of the deaths are announced from Tuesday to Friday, so we will soon see if that projection was correct. Worst states continue to be California, Texas, and Florida. NYC still has restrictions on indoor dining and large gatherings even though there were only 477 new cases in the entire state. Positive rate was 1.09%. Leaders say if the rate stays below 3%, schools will open.