Comments presented to the 100 Black Men of America Economic Empowerment Town Hall Webinar. By economist Dr. Danny Boston, 4/23/20.
First, I trust everyone is well, and I sincerely hope you, your family, and loved ones will be safe through this challenging COVID situation. Thanks to my good friends Tommy Dortch and Milton Jones and to the 100 Black Men for organizing this event and for all you do to empower African-Americans and other under-served communities.
My comments will focus on the current economic situation, i.e., where are we, and where are we likely to be after COVID.
I will organize my comments into three categories.
- Where were we in October and November, 2019 just before the global spread of COVID? It’s important to understand that the economy had many strengths, but also some weaknesses, which will not just disappear when COVID is tamed.
- What is the current economic situation given the COVID shutdown, and what about the future?
- Finally, what are some action items you should consider as you formulate the COVID strategy.
The situation before the spread of COVID
The US economy was thriving and the unemployment rate matched historic lows. The expansion lasted for more than ten years, the longest on record. GDP growth for 2020 was forecast at 2.7%. The US economy pulled the rest of the world’s economies forward. However, everything was not all rosy.
China was experiencing its first significant decline in output in over 30 years. The drop in production was attributable to internal developments and the trade war with the US. US corporate supply chains are heavily dependent upon China.
The euro zone economies were experiencing near-zero growth. Germany had fallen into recession. The United Kingdom exercised Brexit, but had no deal regarding the country’s future trade relations. Growth in middle-income developing countries declined significantly, primarily as a result of the trade war.
Domestically, there were also some troubling signs. Manufacturing production declined by 5%, and the sector was entering a recession. On the other hand, consumers carried the economy, and small businesses with 50 or fewer employees provided most net new jobs.
The budget deficit was estimated to reach $1.5 trillion as a result of the 2018 tax cut. Furthermore, the country was experiencing extreme wealth and income inequality. The median wealth of black households was only $1700. Although there was full employment, a large percentage of the workforce was in the gig economy, where benefits were sparse and wages low.
Those complex problems will not disappear when the COVID shutdown is over. They are issues we must face during recovery from the current situation.
What is the Economic situation today?
The world’s economy has been locked down, including industrialized economies, middle income developing countries, and low-income developing countries. South Korea is the only country that avoided a lock down. A few other countries have been able to function economically with partial lock downs; Taiwan, Hong Kong, and Singapore. The SARS virus prepared them.
As compared to other industrialized countries, the US has the most inefficient and ineffective COVID response. The best indicator is the high death rate, which is approaching 50,000, as compared to South Korea, less than 300 deaths.
America is unofficially in recession. The official proclamation will likely happen when the economic indicators for April are released – even though it usually requires two consecutive quarters of negative output.
What are the indicators? March’s unemployment report added 700,000 individuals to the ranks of unemployed. That drove the unemployment rate up from 3 .5% to 4.4%. Since then, 22 million more people have filed for unemployment compensation. If one adds the 22 million additional unemployed persons to the 7.1 million previously unemployed, the total is 29 million. Now divide that figure by the total labor force of 163 million. Hence, we can expect a May unemployment rate of somewhere between 15% to 18%.
Likewise, we expect black unemployment almost to reach 20%. To put this in perspective, the highest level of unemployment during the Great Depression was 25%. Then, GDP declined by 25%. Current GDP is forecast to decline by 22% during the third quarter of 2020 and average -3% for the entire year.
What industries had the largest job losses thus far and how are black firms with employees positioned?
-Leisure and hospitality -459,000 (8% of black employer-based firms operate in this industry, compared with 24% of Asian firms).
-Healthcare and social assistance – 61,000 (30% black, Asians 14%)
-Temporary help services -50,000 (9% black)
-Retail trades – 46,000 (7% black vs 19% Asian)
-Construction – 29,000 (7% black)
-Manufacturing – 18,000 (1.4% black)
Recent data indicates the retail and food sector declined by 9%, auto sales by 4.5%, and manufacturing by 5.4%. Global decline in the euro zone is forecast at -4.4%, and Japan -4.3%.
What factors will influence a robust recovery?
- Testing, tracking, and isolating – the South Korean experience.
- Relaxation of visa and emigration restrictions internationally.
- Ability to reduce the US budget deficit post-COVID, which will probably range greater than $4 trillion.
- Reduction of trade barriers
- Adequate consumer income & expenditures – the sector that previously carried the economy.
- Re-invigorated small businesses, especially those with 50 or fewer employees
- Provide PPE to all essential workers, a large percentage of whom are black.
- Increase compensation for essential workers, e.g., NY is giving a 50% bonus.
- Increase testing in the black community.
- Implement data monitoring to examine the demographic distribution of stimulus dollars and awards by firm size.
- Provide government assistance to mitigate high black unemployment and the disproportional impact of COVID on black health and mortality.
- Make sure corporations that receive stimulus dollars comply with DBE and MWBE regulations this did not happen during the Great Recession.
- Build mutually beneficial post-COVID strategic alliances, among blacks and interracial. Find ways to increase the capacity of back-owned firms. Those that rely on government contracting should realize there will be stringent government fiscal austerity measures in the future.
Thank you very much for the opportunity and continue the great work of the organization.