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Three Predictable Covid Nightmares — and How Congress Can Help Prevent Them
The good news is that they aren’t partisan, and they’re fixable.
In our response to the Covid-19 pandemic, the United States has all too often been caught flat-footed. Our public officials have tried to avoid or deny problems until they have been right on top of us, and legislative measures have tended to react to major challenges rather than avert them.
That has left policymakers with a lot to react to. And the relief and assistance bill now being worked out in the Senate will need to do that on several fronts. But to do better in the future, that bill should also take on several predictable problems that will face our country over the remainder of the year and which could benefit enormously from some advance attention and action.
Three sets of such predictable problems stand out above all, and in all three cases there are measures that can be taken now that should be able to attract bipartisan support.
First, states are going to face a monumental fiscal crisis.
The pandemic and the ensuing shutdowns of economic activity have left state governments with immense revenue shortages. Balanced-budget amendments in all but one state severely restrict their capacity to run deficits, in many cases even in major emergencies. That means states will have to either find other ways to raise revenue quickly or make major cuts to basic services. Such cuts in spending, jobs and public assistance would exacerbate the deep recession we are in and leave millions who need help in the lurch.
Most state fiscal years begin in July, so in many cases budgets designed or enacted before the severity of the crisis was clear are now starting to take effect, leaving states facing gaps they can easily predict but haven’t formally accounted for. In fact, 16 states are now starting the second year of biennial budgets enacted in 2019, before anyone could have imagined the sort of crisis we now face. Over the coming months, there will be no avoiding the fiscal crunch.
The states have already begun pleading with Congress for help, and sooner or later Congress will need to provide it. Taking steps sooner rather than later would make an enormous difference. The federal government has often been called on to serve as a fiscal backstop for states in extreme emergencies, since its borrowing power vastly exceeds that of the states. And that role is particularly appropriate in a truly national—indeed global—crisis of this magnitude.
But to provide such help responsibly, Congress will need to clearly delineate what kinds of assistance it can offer and on what terms. Congressional Republicans are not wrong to be wary of state efforts to use the emergency to fill fiscal holes dug over decades of irresponsible state policies. Yet that can’t mean that they deny state governments the help they need to contend with this crisis. Rather, it means they must draw some distinctions.
As I’ve argued elsewhere, Congress would do well to divide state needs into three tranches: direct pandemic spending (which should be covered by federal dollars), lost state revenue (which states should be given the opportunity to make up with federally guaranteed loans on favorable terms), and longstanding obligations like pension and retiree health costs made untenable by the recession (for which affected states should be given options only for strictly conditional support, like a new state bankruptcy code or federal support conditioned on major pension reforms).
To be effective, that sort of response would need to take shape now, before states have truly hit the wall. It should be part of the bill the parties are now beginning to negotiate.
Second, this fall’s election is going to be seriously complicated by the pandemic.
There is pretty much no way around that. We’ll be voting while the virus is still spreading, which means that far more people than usual will vote by mail. Only a few states have real experience with voting by mail in large numbers, and the logistics involved are not simple. Primary elections in many states have already made the challenge clear.
To take just one example among many, mailed ballots require signature verification. In states that haven’t spent years building the required infrastructure, such verification will probably need to be done by hand, creating huge risks of confusion and error. States will need to develop new processes to handle this, to train election workers to use unfamiliar equipment, and to take on problems in real time. Signature verification also requires a process for notifying voters whose handwriting is challenged and giving them time to respond. All that, and similar challenges on other election administration fronts, makes it easy to imagine that many races will be impossible to call on election night, and perhaps for quite some time afterward.
Particularly in an era already overflowing with cynical mistrust and conspiracy mongering, such problems raise the prospect of a legitimacy crisis around the election. And policymakers need to take steps now to reduce the risk of such a crisis.
The first step must be to prepare the public. Elected officials, candidates, journalists and others must start speaking plainly about the likelihood of logistical challenges around the election so that voters are not shocked if things don’t go smoothly. People must know in advance that we should not expect every race to be called straight away and that results which take days or even weeks to determine are not therefore illegitimate.
But beyond setting voter expectations, policymakers should also be looking for ways to reduce the strain on the system and to deal with predictable problems. One simple step Congress could take now is to push back the deadlines involved in the work of the Electoral College, to give the states more time to count votes in the presidential race if they need it. A simple change in the federal law governing these dates, which wouldn’t give either party an advantage, could give every state about three more weeks to count. Such a change would be essentially impossible after the election—when partisans looking at partial results would argue over which side it would advantage. But it could easily be done today, it would just take a few sentences of legislative language, and it too should be part of the relief bill now being worked out.
Finally, if we’re lucky, we’re going to need to figure out how to distribute a Covid-19 vaccine early next year. That would be a good problem to have, of course, but a huge problem nonetheless. And getting it wrong could catastrophically undermine the effort to defeat the virus.
Vaccine development itself is one area where our country has not been behind the curve: The federal government has invested heavily in the effort, the National Institutes of Health has played a key coordinating role, and the administration is prepared to pay for “at risk” manufacturing of millions of doses of any vaccine that makes it into Phase III trials, so that if a vaccine is found to be safe and effective there will immediately be doses to provide to high-risk individuals. But who will be first in line to get these early doses? And who will decide?
Here, too, there is an enormous danger of a legitimacy crisis. Both public fear about the safety of a vaccine (building on decades of anti-vaccine conspiracy theories on the right and left alike) and the danger of corruption, or at least perceived corruption, in the distribution of doses could undermine the potential of effective vaccination to end the nightmare of this pandemic.
Widespread uptake is essential to the effectiveness of any vaccine. It is not so much by protecting each vaccinated individual as by vaccinating enough Americans to achieve broad-based communal (or “herd”) immunity that a vaccine could truly change the game. That means public trust in the process and wholesale vaccination across our society will be crucial.
To achieve that, it is essential that both the safety of the vaccine-development process and the basic fairness of the ultimate distribution formula be established in advance, and in a very public way. Congress has a crucial role to play here, too. Hearings should begin very soon to put before the public all available information about the efforts taken by the Food and Drug Administration to ensure the safety of the vaccine-development process, even as that process proceeds with unprecedented speed. And Congress should establish, ideally in this next relief bill, a public commission to develop a formula for equitable distribution of early vaccine doses: setting out tiers of priority (for front-line health workers, vulnerable populations, the elderly, and those with particular preexisting conditions), and seeking out ways to make sure that economic and other disadvantages do not translate into lesser or later access to vaccination.
The work of such a group should be reasonably transparent and would need to begin very soon if it is to bear fruit in time to be useful. Policymakers must not underestimate the danger of a loss of public confidence in a Covid-19 vaccine, and must take steps now to avoid such a foreseeable disaster.
The same is true on all three of these fronts. These may not be the greatest problems we confront in the remainder of this dark and difficult year, but they share some features that ought to make them high priorities: All three are predictable and serious, each would amount to a disaster if left unchecked, but each could be made much easier to handle with some straightforward preparation. The relief bill being negotiated this summer could easily, without sparking a partisan war, take concrete steps on all three fronts.
Leadership in a crisis demands a combination of planning for foreseeable difficulties and responding to the unexpected. Getting the former right can make the latter far more doable. To make the rest of this year less disastrous, our leaders need to look ahead.
8 hospitals closing departments, ending services
Several healthcare organizations recently closed medical units or terminated services to shore up finances, focus on more in-demand services or prevent patient care lapses. Here are eight that have announced or completed closures in the last three weeks:
1. As part of a systemwide strategy, Cleveland-based University Hospitals plans to consolidate its birthing services and its cardiac surgery program. University Hospitals Elyria (Ohio) Medical Center will end labor and delivery services in the next few months. University Hospitals St. John Medical Center in Westlake, Ohio, will end its heart surgery program.
2. St. Albans, Vt.-based Northwestern Medical Center will stop providing addiction treatment services by the end of the month in a cost-saving move. The hospital said that it will close the department because it was spending more on addiction treatment than it was making.
3. Kansas City, Mo.-based Saint Luke’s Health System ended inpatient care at Saint Luke’s Cushing Hospital in Leavenworth, Kan., on July 17.
4. In an effort to consolidate services and cut costs, Jersey City, N.J.-based Christ Hospital said it will close its OB-GYN department by July 31.
5. WellSpan Waynesboro (Pa.) Hospital plans to close its birthing unit and end inpatient pediatric services on Sept. 18, the organization announced in July.
6. New York City-based Montefiore Health System is scaling back services at Mount Vernon (N.Y.) Hospital. In early July, Montefiore shut down the intensive care unit at the hospital and laid off 18 nurses. The ICU closure comes after the 121-bed hospital ended obstetrics, pediatrics, cardiology and oncology services.
7. In a cost-cutting move, Seattle Children’s said it will shut down its day care center that employees use for their kids.
8. Ashtabula (Ohio) County Medical Center plans to close its birthing unit by Aug. 1, according to the Star Beacon. The Ohio Nurses Association has filed a lawsuit to prevent the shutdown.
Fewer than 10% of primary care practices have stabilized operations amid COVID-19 pandemic
Four months into the COVID-19 pandemic, fewer than 10% of U.S. primary care practices have been able to stabilize operations.
Nearly 9 in 10 primary care practices continue to face significant difficulties with COVID-19, including obtaining medical supplies, meeting the increasing health needs of their patients, and finding sufficient resources to remain operational, according to a recent survey of close to 600 primary care clinicians in 46 states.
Only 13% of primary care clinicians say they are adapting to a “new normal” in the protracted pandemic, the survey found.
More than four months into the pandemic and at a time when 39 states are experiencing an increase of COVID-19 cases, fewer than 4 in 10 clinicians feel confident and safe with their access to personal protective equipment, according to the survey from the Larry A. Green Center in partnership with the Primary Care Collaborative, which was conducted July 10 to July 13.
Among the primary care clinicians surveyed, 11% report that staff in their practice have quit in the last four weeks over safety concerns.
A primary care provider in Ohio said this: “The ‘I can do 4-6 weeks of this’ transition to ‘this feels like a new/permanent normal’ is crushing and demoralizing. Ways to build morale when everyone is at a computer workstation away from other staff (and patients) feels impossible.”
“In the first few months of the pandemic, the country pulled together to stop the spread of the virus, and it seemed like we were making progress. Primary care clinicians and practices were working hard, against tremendous challenges,” said Rebecca Etz, Ph.D., co-director of The Larry A. Green Center in a statement.
“But now the country is backsliding, and it’s clear that primary care doesn’t have enough strength to deal with the rising number of cases. If primary care were a COVID-19 patient, it would be flat on its back,” Etz said.
The survey conducted by the Larry A. Green Center is part of an ongoing series looking at the attitudes of primary care clinicians and patients during the COVID-19 pandemic and the abilities of practices to meet patients’ needs.
Close to 40% of primary care providers report they are maxed out with mental exhaustion and 18% say they spend each week wondering if their practice or job will still be there next week.
In addition to feeling stressed, clinicians and their practices are also experiencing upheaval. The survey found that 22% of clinicians report skipped or deferred salaries, and 78% report preventive and chronic care is being deferred or delayed by patients.
Primary care clinicians report that 42% of in-person volume is down but overall contact with patients is high, while 39% report not being able to bill for the majority of work delivered, the survey found.
“Given the rapidly rising infection rates and persistent lack of PPE, more than a third of primary care clinicians are reporting feeling unsafe at the office, and 20% are cutting back on face-to-face visits while doing more remote outreach,” said Ann Greiner, president and CEO of the Primary Care Collaborative in a statement.
Greiner said this is a clear signal that payers must advance or retain parity for telehealth and telephonic calls.
“It also is a clarion call to move to a new payment system that doesn’t rely on face-to-face visits and that is prospective so practices can better manage patient care,” she said.
Providers say they need more support from private insurers, particularly when it comes to reimbursing for telehealth and telephone visits.
According to the survey, a primary care doctor in Illinois said, “Recently told we would not be able to conduct telephone visits due to lack of reimbursement. I work in a low-income Medicare population which has low health literacy and no technology literacy. We were 80% telephone and 20% Zoom and in-office. This further exemplifies the extreme health care disparities in the U.S.”
What ‘Racism Is a Public Health Issue’ Means
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Epidemiologist Sharrelle Barber discusses the racial inequalities that exist for COVID-19 and many other health conditions.
Throughout the COVID-19 pandemic, whether cases are flaring up, slowing to a simmer, or back on the rise in areas across the United States, the data makes one fact apparent: The viral disease has disproportionally sickened and killed marginalized communities. A New York Times analysis of data from almost 1,000 counties that reported racial breakdowns of COVID-19 cases and fatalities revealed that, compared to white Americans, African Americans and Hispanics were three times more likely to experience and two times more likely to die from the illness. The Navajo Nation has, per capita, more confirmed cases and deaths than any of the 50 states.
Many factors, like access to healthcare and testing, household size, or essential worker status, likely contribute to the pandemic’s outsized toll on communities of color, but experts see a common root: the far-reaching effects of systemic racism.
That racism would have such an insidious effect on health isn’t a revelation to social epidemiologists. For decades, public health experts have discussed “weathering,” or the toll that repeated stressors experienced by people of color take on their health. Studies have demonstrated the link between such chronic stress and high blood pressure, the increased maternal mortality rate among black and indigenous women, and the elevated prevalence of diabetes in black, Latino and especially Native American populations. The pandemic has laid bare these inequities. At the same time, outcry over systemic racism and police brutality against African Americans has roiled the nation, and the phrase, “Racism is a public health issue” has become an internet refrain.
What exactly is the nebulous concept of “public health”? According to Sharrelle Barber, a Drexel University assistant professor of epidemiology, the concept goes beyond the healthcare setting to take a more holistic look at health in different populations. “The charge of public health,” Barber told Smithsonian, “is really to prevent disease, prevent death, and you prevent those things by having a proper diagnosis of why certain groups might have higher rates of mortality, higher rates of morbidity, et cetera.”
Below is a lightly edited transcript of Smithsonian’s conversation with Barber, who studies how anti-black racism impacts health, about the many ways in which racism is a public health crisis:
When people say, “Racism is a public health problem,” what, in broad strokes, do they mean?
We’ve been observing racial inequities in health for decades in this country. W.E.B. DuBois, who was a sociologist, in The Philadelphia Negro showed mortality rates by race and where people lived in the city of Philadelphia at the turn of the 20th century and found striking inequalities based on race. Fast forward to 1985, 35 years ago, and we have the [Department of Health and Human Services-sponsored] Heckler Report, one of the most comprehensive studies the country had undertaken, which again found striking inequalities across a wide range of health outcomes: infant mortality, cancer, stroke, et cetera.
There are various explanations for why these racial inequalities exist, and a lot of those have erroneously focused on either biology or genetics or behavioral aspects, but it’s important to examine the root causes of those inequities, which is structural racism…Racism is a public health problem, meaning racism is at the root of the inequities in health that we see, particularly for blacks in this country. So whether it’s housing, criminal justice, education, wealth, economic opportunities, healthcare, all of these interlocking systems of racism really are the main fundamental drivers of the racial inequities that we see among black Americans.
What are some specific factors or policies that have set the foundations for these health inequities?
Any conversation about racial inequities has to start with a conversation about slavery. We have to go back 400-plus years and really recognize the ways in which the enslavement of African people and people of African descent is the initial insult that set up the system of racism within this country. One of the major drivers that I actually study is the link between racial residential segregation, particularly in our large urban areas, and health inequities. Racial residential segregation is rooted in racist policies that date back at least to the 1930s. Practices such as redlining, which devalued black communities and led to the disinvestment in black communities, were then propped up by practices and policies at the local, the state and federal level, for example, things like restrictive covenants, where blacks were not allowed to move into certain communities; racial terror, where blacks were literally intimidated and run out of white communities when they tried to or attempted to move into better communities; and so many other policies. Even when you get the 1968 Fair Housing Act, the system finds a way to reinvent itself to still perpetuate and maintain racism.
Within segregated communities, you have so many adverse exposures, like poor quality housing or lack of access to affordable, healthy foods, lack of access to quality healthcare, and the list goes on. The chronic stressors within these communities are compounded in segregated communities, which then can lead to a wide array of health outcomes that are detrimental. So for example, in the city of Philadelphia, there’s been work that has shown upwards of a 15-year life expectancy difference between racially and economically segregated communities, black communities and wealthier white communities.
I imagine that sometimes you might get pushback from people who ask about whether you can separate the effects of socioeconomic status and race in these differences in health outcomes.
Yeah, that’s a false dichotomy in some ways. Racism does lead to, in many aspects, lower income, education, wealth. So they’re inextricably linked. However, racism as a system goes beyond socioeconomic status. If we look at what we see in terms of racial inequities in maternal mortality for black women, they are three times times more likely to die compared to white women. This disparity or this inequity is actually seen for black women who have a college degree or more. The disparity is wide, even when you control for socioeconomic status.
Let’s talk about the COVID-19 pandemic. How does racism shape the current health crisis?
The COVID-19 pandemic has literally just exposed what me and so many of my colleagues have known for decades, but it just puts it in such sharp focus. When you see the disproportionate impact COVID-19 is having, particularly for blacks, but also we’re seeing emerging data on Indigenous folks, it is just laying bare the ways racism is operating in this moment to produce those inequities.
Essential workers who had to continue to work during periods of stay at home orders across the country were disproportionately black and Latino. These are also often low wage workers. They weren’t given personal protective equipment, paid sick leave, hazard pay, and really had to choose between being exposed and protecting themselves and having an income during this period. So that’s one way racism operates.
Then we know that those individuals aren’t isolated, that they return to homes that often are crowded because of the lack of affordable housing. Again, another system of racism that compounds the effect. Then you think about places like Flint, Michigan, or places that don’t have access to clean water. When we were telling people, “Wash your hands, social distance,” all of those things, there were people who literally could not adhere to those basic public health prevention measures and still can’t.
New Kaiser Permanente medical school opens in Pasadena with free tuition through 2024
https://abc7.com/new-kaiser-school-pasadena-bernard-j-tyson-of-medicine-permanente-medical/6336881/
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The new Kaiser Permanente medical school in Pasadena opened its doors to faculty and students for the first time Monday, with free tuition through 2024.
The Bernard J. Tyson School of Medicine opened for its inaugural class of 50 students in the midst of the coronavirus pandemic, which officials say presents “unparalleled challenges.”
The pandemic has forced the school to make adjustments, including adopting a “hybrid model” that includes in-class and virtual programs and more frequent cleaning, Walter Harris, the school’s senior vice president of administration and finance, told City News Service. He said some classes could be held with some students in one classroom and others watching from another classroom via Zoom.
The school has waived tuition, fees and disability insurance for students entering through the fall of 2024, and students in those classes will receive a waiver for the cost of a health plan from Kaiser Permanente unless they have an equivalent health plan, according to the school’s website.
The four-story, state-of-the-art building could accommodate twice as many students, which easily enables physical distancing, Harris said.
Students have been advised they need to wear face masks, and the school will have plenty of hand sanitizer and wipes available, he added.
None of the students objected to the school opening as scheduled, according to Harris, who said they are “very excited to get their medical careers started.”
The school includes an anatomy resource center in which traditional cadaver dissection will be replaced with newer methods that are more clinically relevant, along with a rooftop garden with a meditation, yoga and fitness area for student and faculty “wellness.”
Students are set to begin interacting with patients during their third week of school and to learn from Kaiser Permanente physicians and care teams at six of its medical center campuses, including Los Angeles, West L.A. and Downey.
Fed chief: New surge in cases is beginning to weigh on the economy
The Federal Reserve is keeping interest rates unchanged at close to zero, but the Fed is also extending programs to buy Treasuries and mortgage-backed securities.
Job gains from May and June came “sooner and stronger” than expected, Powell said. But those encouraging signs were closely followed by a surge in coronavirus cases nationwide. Powell said that at the same time people’s lives depend on containing the public health crisis, it is also important to “deal with the economic ramifications.”
Powell said some measures of consumer spending, based on debit card and credit card use, have moved down since late June. Powell also mentioned recent labor market indicators that are pointing to slower job growth, especially for smaller businesses. Hotel occupancy rates have flattened out, Powell said, while Americans are not going to restaurants, gas stations and beauty salons as much as they had been earlier in the summer.
Powell said the upcoming jobs reports and other surveys will help flesh out the Fed’s economic outlook, cautioning that he did not “want to get ahead of where the data are on this.” But as he has for months, Powell again emphasized that the economy’s recovery depends on the country’s ability to stop the virus from spreading.
“The path of the economy is going to depend, to a very high extent, on the course of the virus and on the measures we take to keep it in check,” Powell said. “The two things are not in conflict. Social distancing measures and a fast reopening of the economy actually go together. They’re not in competition with each other.”
As expected, the Fed’s policymaking board decided to keep interest rates, which are already near zero, unchanged as it concluded two days of policy meetings this week. Markets responded optimistically to the news, with the Dow Jones industrial average ending up 160 points at Wednesday’s close.
The Federal Reserve signaled in its statement on Wednesday that the Fed would continue to use “its full range of tools” to steer the economy out of recession, even as the virus significantly shapes the future of the economy.
“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed’s top panel of policymakers said in a statement at the conclusion of two days of meetings.
After sharp declines, economic activity and employment “have picked up somewhat in recent months,” the Fed said. Economists have been closely watching July indicators, which could help explain whether the recovery from earlier this summer is beginning to fizzle as some states and cities reimpose restrictions on businesses to combat rising coronavirus cases.
“Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses,” the Fed statement read.
To support the flow of credit to households and businesses, the Fed said it would increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace over the coming months. The Fed has said its support of the markets should remain in place to help safeguard the broader financial system during the pandemic.
At his news conference, Powell said the Fed was committed to keeping its lending facilities and other emergency measures in place not only during the shutdown and reopening, but also through the “long tail where a large number of people are struggling to get back to work.”
“We’re in this until we’re well through it,” Powell said.
Powell’s news conference comes as Congress clashes over another stimulus bill and an extension for enhanced unemployment benefits. On Tuesday, President Trump brushed off the new $1 trillion Senate GOP coronavirus legislation as “sort of semi-irrelevant.”
Powell has repeatedly said that the Fed cannot heal the economy alone and that more help will be needed from Congress to ease the pain for millions of Americans. On Wednesday, Powell said funding from the Cares Act has been key to keeping people in their homes and jobs. He praised the Paycheck Protection Program, for example, for getting money directly to businesses that couldn’t necessarily have been saved through a Fed lending program.
“Lending is a particular tool, and we’re using it very aggressively, but fiscal policy is essential here,” Powell said. “As I’ve said, more will be needed from all of us, and I see Congress is negotiating now over a new package, and I think that’s a good thing.”
Powell has stopped short of telling lawmakers exactly what they should do, or how urgently they should act, saying it isn’t his role to tell other parts of government how to do their jobs. But on Wednesday, Powell pushed the success of Congress’s earlier programs as reason for lawmakers to act again, said Skanda Amarnath, research director of Employ America, a policy group that advocates for full employment and higher wages.
Amarnath said Powell’s framing could give some cover to Republican lawmakers who are less convinced more help is needed, or who dispute the connection between the virus and the recovery.
“[Powell] is trying to reiterate that you can’t think of this as ‘either or,’ ” Amarnath said, adding that when it comes to tackling the pandemic and the economy, “you’re going to have to tackle one to tackle the other.”
For months, Powell has insisted that the virus will dictate an economic turnaround, which he says can’t happen until Americans feel safe going about their daily routines. Since the Fed’s last meeting in June, rising case counts have forced states to reimpose restrictions on business activity. Minutes from the Fed’s June meeting showed officials were worried the United States could enter a much worse recession later this year if the pandemic is not contained.
At this week’s Fed meeting, Fed leaders were expected to discuss other policy tools, such as forward guidance and asset purchases, without necessarily coming away with any firm conclusions. Economists are also awaiting the release of the Fed’s long-term monetary policy review, which could change the way the Fed approaches its inflation target.
Did a third of the economy really vanish in just three months?
The second quarter GDP report confused many, but any way you slice it, the economy saw its worst quarter in at least 145 years.
The Commerce Department opened today’s announcement of second-quarter economic growth with an eyeball-blistering observation: “Real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020.”
That 32.9 percent represents the loss of a third of the economy. Let that sink in. Now let it wriggle back out again — it is not exactly true. Why? The Commerce Department reports quarterly GDP at an annual rate to allow easy comparisons to other time periods. Remove the annualization, and we see the economy contracted a still-abysmal 9.5 percent.
In other words, 32.9 percent is how much the economy would shrink if the business closures and spending cuts of the second quarter increased at a compounding 9.5 percent for an entire year, after adjusting for seasonality.
Think of what an apocalypse that would be. Annualization assumes the businesses closed this quarter would remain closed and that just as many more would close in the third quarter. And we’d expand the closures again in the fourth quarter and again in the first quarter of next year.
In other words, take the devastation you saw in the past three months and multiply it by four. That is essentially what annualizing does, though compounding means the actual math is a bit more complicated.
The Commerce Department’s affection for annualization does not stop at percentage change. It also reports quarterly GDP totals at an annualized rate — when Commerce says GDP was at $17.2 trillion in the past quarter, it means GDP would be at $17.2 trillion if this quarter’s $4.3 trillion in output continued for a full year.
With that in mind, here is U.S. GDP, adjusted for inflation and reported as quarterly totals, as suggested by reader Nick Estes.
That chart does not crash by a third, obviously. A 32.9 percent drop would mean a loss of about $1.6 trillion from last quarter. In fact, the economy shrank $0.45 trillion in the second quarter, on the heels of a $0.06 trillion (1.3 percent) decrease in the first quarter of 2020.
To see a third of the economy truly vanish, look at the Great Depression. From 1929 to 1933, GDP contracted about 36 percent, according to data collected by economists Nathan Balke and Robert Gordon. That is the actual contraction — no annualization in sight.
Commerce Department data, which start in 1947, show the previous worst quarter on record was a 2.6 percent drop in 1958. That contraction just happened to coincide with the “Asian flu” pandemic, which claimed about a million lives worldwide.
With Balke and Gordon’s expanded data, we can also establish that a drop of 9.5 percent makes this quarter the worst since at least 1875. The next worst were in 1893, when a legendary panic and run on the banks resulted in a long, painful depression, and 1937, when the Great Depression took a turn for the worse. Then, we saw drops of 8.4 percent and 7.2 percent, respectively.
3 Months Of Hell: U.S. Economy Drops 32.9% In Worst GDP Report Ever
Economy Shrank At 32.9% Rate In 2nd Quarter
Percent change from the preceding period, seasonally adjusted annual rate
The coronavirus pandemic triggered the sharpest economic contraction in modern American history, the Commerce Department reported Thursday.
Gross domestic product — the broadest measure of economic activity — shrank at an annual rate of 32.9% in the second quarter as restaurants and retailers closed their doors in a desperate effort to slow the spread of the virus, which has killed more than 150,000 people in the U.S.
The economic shock in April, May and June was more than three times as sharp as the previous record — 10% in 1958 — and nearly four times the worst quarter during the Great Recession.
“Horrific,” said Nariman Behravesh, chief economist at IHS Markit. “We’ve never seen anything quite like it.”
Another 1.43 million people filed for state unemployment last week, an increase of 12,000, the Labor Department reported Thursday. It was the second week in a row of increased unemployment filings and shows that the economic picture continues to remain grim.
GDP swings are typically reported at an annual rate — as if they were to continue for a full year — which can be misleading in a volatile period like this. The overall economy in the second quarter was 9.5% smaller than during the same period a year ago.
After a sharp drop in March and April, economic activity began to rebound in May and June, although that recovery remains halting and could be jeopardized by a new surge of infections.
“As soon as the virus started to take off again in key states like Texas, California, Arizona, Florida, it’s fading very rapidly,” Behravesh said.
Restaurant owner Cameron Mitchell likens the pandemic to a hurricane. What appeared to be a business rebound in June turned out to be merely the eye of the storm, and he’s now being buffeted by gale-force winds again.
“Our associates are more scared to work today and guests are more afraid to go out, so sales have dropped,” Mitchell said.
Business at his restaurants in Florida had nearly recovered to pre-pandemic levels in June but has since fallen sharply.
Other industries have enjoyed a more durable recovery, though few are back to where they were in February.
Dentists’ offices are ordinarily one of the more stable parts of the economy, but they closed for all but emergency services during much of the spring. Dental hygienist Alexis Bailey was out of work for 10 weeks before her office in Lansing, Mich., reopened at the end of May.
At first, she was reluctant to go back to work while the virus was still circulating.
“I was terrified,” Bailey said. “I was not happy to be back. But I have a job to do and I like to do it and I want to help people. We talk about how essential we are, so that’s what we’ve had to do.”
Within an hour of returning to work, Bailey said, she began to feel comfortable, particularly with the additional protective gear and other safety precautions her office has adopted.
“I tell my patients all the time I wouldn’t be here if I didn’t feel safe,” she said.
Nationwide, dental offices added more than a quarter-million jobs in May and another 190,000 in June. And there has been no shortage of patients.
She thought no one would want to come. “But we’re booked,” Bailey said. “People miss getting their teeth cleaned. They want to catch up. Every time they come in, they say, ‘This has been nice to get out of the house and feel safe and talk to somebody.’ ”
Factory production has also begun to rebound, along with construction. But airlines and amusement parks are still struggling.
“It’s very much a sort of two-tiered economy right now,” Behravesh said.
The unemployment rate approached 15% in April, and in June it was still higher — at 11.1% — than during any previous postwar recession.
While the drop in GDP was largely driven by a decline in consumer spending, the economic fallout was cushioned somewhat by an unprecedented level of federal relief.
Wages and salaries fell sharply in April, but that was more than offset by the $1,200 relief payments that the government sent to most adults and by supplemental unemployment benefits of $600 per week.
Those government payments helped prevent an even steeper drop in consumer spending — the lifeblood of the U.S. economy — and allowed struggling families to buy groceries and pay rent.
Federal Reserve Chair Jerome Powell said Wednesday that the money “has been well spent. It has kept people in their homes. It has kept businesses in business. So that’s all a good thing.”
Those extra unemployment benefits are expiring this week, though. With coronavirus infections still threatening the recovery, additional federal support is likely to be necessary.
“Until we get the virus under control, we’re going to need more help,” Behravesh said. “Our view is that we’re not going to get to the pre-pandemic levels of economic activity until some time in 2022.”
Restaurant owner Mitchell says his business lost $700,000 in June alone. He predicts a wave of restaurant bankruptcies unless the federal government provides more relief.
“No one is looking for a handout here,” he said. “We’re looking to survive.”
He’s watching news of vaccine trials closely in hopes that eventually diners will feel comfortable eating out again in large numbers.
“I don’t think it’s the next couple of weeks,” he said. “But I tell our team, ‘Every day that goes by, it’s one day closer to the end of this thing.’ ”
HENRY KOTULA 