EC A Vaccine And The “New New Normal”

Moderna and Pfizer recently announced they had potential vaccines for COVID-19 that are more than 90% effective. With that, the market surged, and a rotation into “economically sensitive” sectors occurred. While a “vaccine” will eventually come to the market, it will only ensure a return to the “New New Normal.”

The Old “New Normal”

Following the “Financial Crisis,” there was much discussion in the media about the “New Normal.”

The term originated cautioning economists and policy-makers’ belief industrial economies would revert to levels seen before the financial crisis. In other words, the “new normal” economy would look a lot different, and worse, after the financial crisis was over. 

Such did turn out to be the case. Economic growth struggled to maintain a 2.2% annualized growth rate, interest rates remained abnormally low, and inflation was nascent. Despite the Fed’s best efforts, productive investments or increases in the labor force participation rate failed to appear.

The chart below shows productivity increases through automation, and technology did not lead to higher employment levels relative to the population.

Vaccine New Normal, #MacroView: A Vaccine And The “New New Normal”

In the “Old-New Normal,” the shift in employment, combined with increased productivity, led to weaker income growth for the bottom 80% of the population. Such was a point we discussed recently concerning the Federal Reserve’s latest study on consumer finances. To wit:

“The real story becomes much more apparent when breaking incomes into deciles.”

Vaccine New Normal, #MacroView: A Vaccine And The “New New Normal”

“Interestingly, the ONLY TWO age-groups where incomes have improved since 2007 are those in the top 20% of income earners. Again, this suggests the plunge in the LFPR is not a function of “retirement.” Individuals are working well into their retirement years, not because of a desire to, but due to necessity.”

 

The Vaccine Doesn’t Solve The Problem.

Please understand me. “Vaccine news” is certainly good and very welcome. However, don’t get too excited just yet. Even if Pfizer and Moderna get through Phase-IV trials and produce a drug, most of the population will not see it for many months. As noted by the Wall Street Journal:

“However, it could be many months before any vaccine is administered to enough people to ease the need for lockdown measures that have been recently reimposed across the West. Duke Global Health Innovation Center estimates that there won’t be enough vaccines to cover the world’s population until 2024.

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