The growth in COVID-19 cases in the US is likely to accelerate further, but new blanket lockdowns from states appear unlikely: the virus has become less lethal, there is ample healthcare spare capacity, and the long-term epidemiological benefits of lockdowns are unclear while their economic costs are prohibitive. New COVID-19 cases in the US have been rising since about mid-June (Chart 1). And, while America is continuing to ramp up its testing, this is not the sole reason for the growth in case numbers. Since mid-June, the share of positive tests has been increasing…
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The growth in COVID-19 cases in the US is likely to accelerate further, but new blanket lockdowns from states appear unlikely: the virus has become less lethal, there is ample healthcare spare capacity, and the long-term epidemiological benefits of lockdowns are unclear while their economic costs are prohibitive.
It is Not Just Increased Testing
New COVID-19 cases in the US have been rising since about mid-June (Chart 1). And, while America is continuing to ramp up its testing, this is not the sole reason for the growth in case numbers. Since mid-June, the share of positive tests has been increasing.
US cases growth was likely rekindled by a bottom-up relaxation of social distancing since end-May. By end-May, many Americans had been under strict lockdowns for two months or more with, as shown on Chart 1, limited results. US daily new cases never fell below 6 per hundred thousand population. By contrast, in France and Germany, where lockdowns have been shorter than in the US, cases have remained below 1 per hundred thousand since mid-May.
Against this backdrop, the Memorial Day weekend and the murder of George Floyd on 25 May triggered a greater relaxation of social distancing and mask wearing. In the US, Memorial Day marks the unofficial beginning of summer and Americans get together for cookouts. After two months of social isolation, Americans decided to break the lockdown and celebrate with family and friends. At the same time, public outrage over the murder of George Floyd led to mass demonstrations where social distancing and face covering both went unobserved.
Faced with mass noncompliance, surging unemployment, and limited public patience, governors decided to reopen their states even though most of them did not meet the CDC criteria for doing so. Unsurprisingly, case growth has picked up and is likely to continue, but this is unlikely to lead to renewed blanket lockdowns for 3 reasons.
First, COVID-19 is Becoming Less Deadly.
There is still much debate globally about how deadly the disease is, but, in the US, symptom severity and case fatality rates (CFR) are clearly falling. Despite the accelerating case growth, four fifths of US states have seen a decline in both hospitalization and case fatality rates in the 3 weeks to 23 June.
Due to these milder symptoms, hospital capacity generally remains ample. And should COVID-19 cases surge, it would be possible to free up capacity by postponing nonessential surgeries, diverting patients to neighbouring states, or building additional hospitals as was done in March (those hospital were dismantled as they ultimately went unused).
Second, the Long-term Impact of Lockdowns on the Epidemic is Unclear.
COVID-19 prevalence across US states is converging. Since the epidemic started, the distribution of cases across states has converged to the distribution of population. In addition, states that account for the largest share of the US cases have seen little acceleration in daily case growth, with the exception of California.
The convergence could reflect that either containment measures make little difference on the long-term epidemic progression or that the US has no internal borders; or more likely it is a combination of both. Some states have put in place quarantine requirements for visitors from other states, but these are difficult to enforce. States generally do not have the infrastructure to keep track of out of state visitors. With porous borders, states’ individual containment measures are unlikely to have much long-term impact on COVID-19 prevalence.
Third, the Economic Costs of Lockdowns are Prohibitive
Even if the acceleration in case growth continues, a resumption of blanket lockdowns appears unlikely. Elected officials are likely to weigh further damage to already collapsed economies against the falling COVID-19 mortality and limited long-term medical benefits of lockdowns and conclude that voters are best served with more targeted measures. Furthermore, blue states seem to have been hit harder, economically, than red states: average unemployment is 10% in states with a Republican governor against 14% in states with a democratic governor. In addition, about 60% of workers laid off in red states since the coronavirus have been able to find jobs, against about 50% in blue states. These patterns lower the risk of lockdowns since red states with less economic damage have governors keener to re-open their economies, while blue states that have been hit harder by unemployment can ill afford another lockdown.
So far, the response of state governors to the accelerating case growth has mainly consisted of slowing re-openings and imposing mandatory face covering in public spaces. The above discussion suggests that, unlike during the initial stages of the epidemic, policy responses are likely to remain targeted so as to minimize their economic impact.
Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)