The recent spike in COVID-19 cases nationally, including a large bump in North Carolina, has us worried on a number of fronts—including its potential impact on the budding economic recovery. The $64,000 question has become, “Will we see a double-dip recession?” After the substantial rebound in consumer spending in May and early June, the most recent data suggests a stall in activity over the last month. Combined with an out-of-control worsening of the pandemic in several states, this trend is worrisome. Yet current conditions do not guarantee another plunge in the economy like the one we experienced in April. In this commentary, we look at the situation from our preferred three angles: health statistics, economic data, and individual behavior and welfare assessment.

Rising health uncertainty

First, let’s recap current conditions with the pandemic itself. (We remind readers that we are not doctors or epidemiologists; we are simply providing our take on publicly available health statistics through the lens of their broader socioeconomic impact. No one should consider this column advice on public health matters.) While new cases are soaring in many states, the severity is quite varied. Some states are handling the situation just fine, while others are increasingly overwhelmed. Looking specifically at North Carolina, the state remains somewhere in the middle, as it has for much of the pandemic. Fortunately, the situation appears to remain under control for now.

While North Carolina has been consistently setting daily records for new cases, the associated numbers of hospitalizations and deaths continue to lag in terms of growth rates. To be clear, hospitalizations are growing and deaths have ticked up in the last few weeks, but the magnitudes are very different. For example, data from the week ending July 16 show the number of new cases in North Carolina over the previous month to be up about 84 percent, whereas the number of hospitalizations is up 37 percent and the number of deaths has remained basically flat (with the caveat that reporting delays for deaths appear longer than for new cases or hospitalizations). The most likely explanations for these trends are:

• More hospitalizations and deaths are coming, owing to the lag between infection and serious illness and death for many patients.
• Improved testing is identifying more cases that will not end up in hospitalization or death (we are working on a model for unidentified cases and hope to share that in the coming weeks).
• Better treatments are reducing deaths and time spent in the hospital.
• The demographics of infections are changing, with an increased number of younger and healthier people becoming infected.
• Hospitals are admitting marginal patients more often because they are less concerned about being overwhelmed with severe cases.

Any and all of these explanations could support the observed trends, but they also beg the question of how economic policymakers should respond. At its essence, this is a very challenging forecasting question. While the state’s hospital system currently has sufficient capacity to handle new cases, a rapid acceleration in demand from increased new cases or an increase in the severity of cases could result in some facilities (or broader geographies) getting overwhelmed. In our view of how broader economic conditions should be metered, this is the critical constraint. North Carolina must avoid what happened previously in New York and New Jersey and is now happening in other parts of the country. Yet with the uncertainty about what is causing the divergence in healthcare statistics, it is very difficult to determine appropriate “openness” policies. We were glad to see the that N.C. Department of Health and Human Services is now providing regional data on hospitalizations, but we would also like to have additional data that could shed light on the details of the problem (e.g., the age of patients who are sick, hospitalized or who have died).

Where does this leave the economy?

The reality is that short of a return to Phase 1 closures (which we do not support at this time), there is not an effective way for policy to meter new cases (besides advocating for the obvious and essential precautions of social distancing, handwashing and wearing of masks in public—all of which we strongly support). So, with most businesses and consumers currently left to make their own decisions, what are we seeing?

• Aggregate spending growth has stalled nationally and in North Carolina. We are observing this in the most sensitive sectors, such as entertainment, apparel, healthcare and restaurants. Interestingly, transportation has continued to grow at a steady rate, suggesting that more businesses are operating, but likely at lower average output levels (summer recreation travel is also a contributor).
• We continue to be surprised at how tightly the state economy tracks the national economy in almost all spending categories. This is potentially troubling, because it suggests that even if North Carolina can remain on top of the pandemic while other states struggle, our economy will be impeded by the national trend. However, unemployment trends have started to diverge a bit, with unemployment in North Carolina continuing to trend down, even as the U.S. rate flattens out. The current difference of almost three percent is the largest in more than a decade.
• Small business activity (which leveled off sooner than overall spending) had been another relative bright spot for North Carolina, with activity almost returning to pre-pandemic levels by late May. But the most recent readings suggest another decline over the last few weeks. (Recent data are slightly confounded by the Independence Day holiday; coming weeks will provide clearer evidence on the current trend.)

Overall, we are seeing clear indications of a stall in activity, but fortunately there is not yet an outright double-dip. Our concern, though, is that it may be coming. As conditions continue to worsen in many states, we will see some new policy lock-downs, which will mechanically reduce activity (and spillover to North Carolina as we mentioned above), but these will also affect broad consumer willingness to engage in nonessential activities.

The consumer is number one

Our mantra for months has been that there is no way to have a robust and sustainable economic recovery without consumers both being safe and feeling safe as they undertake nonessential activities away from home. (See, for example, this Goldman Sachs white paper.) Again, we acknowledge the massive public health component to the pandemic, but the negative impacts on society are much broader than even the (admittedly severe) healthcare outcomes.

This was the logic behind constructing our Consumer Consternation Index, as well as our desire to understand how different demographic groups are being affected by the pandemic. What we have been seeing over the last few weeks is concerning in that respect as well. After peaking in April, consumer concern over undertaking nonessential activities away from home was diminishing consistently until June. During the last month, consternation in North Carolina has leveled off, and even ticked up slightly in late June. Nationally, we see a similar flattening trend, but consternation has actually fallen to a slightly lower level overall than in North Carolina (though this difference may not be statistically significant). In short, and as we would expect, the consternation trends are mirroring trends in employment and aggregate spending (though some of this is mechanical, since the index includes spending data on some nonessential items). We reiterate that, while “openness” policies can influence the consternation index, we observed significant changes in the index before policy changes were made. Consumers make their own decisions, and without consumers on board, openness policies will not return the economy to pre-pandemic conditions.

Finally, we examine trends for specific socioeconomic and demographic groups. Looking at our Index of Socioeconomic Adversity, we see a notable uptick in July both for the U.S. and North Carolina. Clearly the broader impact of the pandemic is intensifying, and this is bad news for those individuals most under pressure as well as for society as a whole. In particular, we note:

• Those older than age 59 were less affected than other age groups initially, but recent data for North Carolina shows a spike in their adversity levels (the national index has also increased, but not as sharply). Older individuals are likely concerned that the risks of the pandemic to them in particular are increasing disproportionately, and are undoubtedly worried about how long they will have to stay home to be safe.
• Non-white households continue to face higher adversity than white households, though on the national level, all have seen an increase in adversity in recent weeks. The North Carolina data is too noisy to infer current trends.
• Households with children have been facing relatively more adversity during the last month.
• Married households, which had been faring better than single households, have experienced an uptick in adversity in recent weeks.
• Low-income households continue to face severe levels of adversity, but recently middle-income and high-income households have also started to tick up.

Taken together, these indicators suggest a negative trend in terms of the financial and social conditions facing individuals. At a minimum, this poses a risk to continued economic growth on both the state and national level. The immediate policy response is not obvious for North Carolina, where health conditions are worsening but seem under control. To a large extent, the path of economic activity in North Carolina will be driven by individual and business decisions, not government decisions. For this reason, we reiterate our simple advice that the responsible individual behaviors of social distancing, hand washing and public mask-wearing are crucial components of the economic recovery.

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