US Macro: Whichever way you cut it, the pandemic is re-accelerating – Daily new covid-19 cases continue to rise in the US, with the 7-day moving average rising from c.22.5k per day around a week ago, to c27.5k per day over the past week – the highest since early May. Daily new deaths have continued to decline for the time being, although this is naturally a lagging indicator. The hotspots continue to be southern states, particularly Texas, California, and Florida. Indeed, we calculate that states representing just over half (53%) of US GDP now have virus replication rates (Rt) above one (see here for the latest estimates). This is crucial, for as long as Rt is above one, growth in virus cases is exponential, and the pandemic will eventually spiral out of control once again. Note that the Rt measures we use adjust for increased testing, which for a time explained much of the increase in new cases. Hospitalisations data offers an additional cross check, and here we find that Texas is facing a particularly worrying increase, with average daily hospitalisations rising 5.4% over the past week, after being broadly flat for most of May.
Policy response has been limited so far… – Most governors and mayors have largely played down prospects of renewed lockdowns for now, with the focus on trying to enforce existing measures. For instance, Miami mayor Gimenez has been talking of ‘cracking down’ via law enforcement, while in Houston, Texas two bars had their licenses suspended for failing to adhere to social distancing protocols. In California, governor Newsom has implemented a statewide requirement for mask-wearing in public spaces. It therefore remains to be seen if the recent spike in infections will be sustained, or if it is a case of adjusting to the new normal following the reopening of the economy.
…but current trends are unsustainable, if they persist – For the time being, hospital capacity remains ample in all of the affected states, and there is as yet no great appetite to reimpose state-wide lockdowns. However, daily rises in hospitalisations of 5%+ as seen in Texas can only be sustained for so long, and if more vigorous enforcement of existing rules fails to bring Rt back down to below one, then renewed restrictions look inevitable to us. With that said, we think this is likely to take the form of county-level lockdowns rather than state-wide stay-at-home orders of the type seen before. This would also follow the pattern we saw in the phased reopening, during which some counties in a given state reopened much earlier than others. Indeed, much of the current spike in infections is occurring in the most populous urban areas, with rural areas much less affected, and these more urban areas are at a much greater risk of going back into lockdown than others. Meanwhile, even without widespread lockdowns, consumer behaviour in unaffected areas is also likely to be affected by signs of a resurgence elsewhere. All told, with the pandemic clearly resurgent, we continue to see risks to our growth outlook as tilted to the downside.