In an age punctuated with almost biblical chaos—plague, brutality, and surreal images of the president posing with a holy book he fumbles like a strange cut of meat—there has been one queasy and bizarre constant: “... and stocks rose.” On Wednesday, U.S. deaths from COVID-19 officially surpassed 100,000, and stocks rose. On Friday, the Commerce Department reported that GDP plummeted nearly 5 percent in the first three months of the year, and stocks rose. Over the weekend, Americans took to the streets of large cities and small towns to protest the killing of George Floyd and call for an end to years of police brutality and systemic racism against black Americans, as their mostly peaceful movements were often attacked by police and beset by chaos tourists smashing the windows of local stores. And stocks rose.
In fact, stocks seem to do nothing but go up these days. April was the best month for the Dow since the Reagan administration, and stocks were up in May as well. In the time that officially recorded U.S. deaths from COVID-19 increased from 100 to 100,000, the S&P 500 rose by 20 percent. What is going on?
A common answer to that question is that “the stock market is not the economy.” This observation is very popular, technically true, and often useless. Furniture sales, food service employment, and average home values in Idaho aren't the whole economy either, because the economy is a machine of many parts. By comparison, people don’t go around screaming “My neck is not my body!” as if it means something. Your neck is a part of your body, and the stock market is a part of the economy; in both cases, if the former is acting in an irregular way, it’s probably worth looking into.
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When we look deeper, the story that emerges is confusing and contradictory. Americans locked in their houses with children, work, and baked bread have created an extinction-level event for small businesses, which has resulted in unprecedented layoffs and furloughs. But thanks to government stimulus, overall income has increased, and Americans have shifted spending to the virtual economy, compressing 10 years of anticipated e-commerce growth into a matter of weeks.
The COVID-19 crisis is simultaneously thrusting Americans into the pre-urban homestead economy of the 1830s, re-creating the Depression-era joblessness of the 1930s, and pulling forward the virtual economy of the 2030s. We are living in the weirdest economy ever.
In at least three ways, this recession is completely bizarre and ahistorical. And each weirdness helps explain the perceived gap between the stock market and the rest of the economy.
First, the economy is not really “broken,” as it was in the Great Recession, when the U.S. housing market collapsed like a wobbly Jenga set as the stock market, labor market, and manufacturing industry all came clattering to the ground at once. Instead, a global pathogenic pulse, whose reverberations are being felt in every corner of the world, has suddenly interrupted an otherwise normally functioning economy. That means we can’t solve the economic crisis until we solve the public-health crisis.
But that logic also leads to the assumption that if the public-health problem is solved, the economic recovery could be quick. That’s why stocks have jumped on optimistic rumblings about vaccines trials. When every company is in the plague business, every stock is a vaccine stock—and every cheery vaccine headline is a corporate-equity stimulus.
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Second, this crisis combines an unprecedented shutdown of the physical economy with an unprecedented federal effort to distribute emergency cash to tens of millions of families. In April, consumer spending suffered the worst drop on record in the same month that personal income saw the biggest increase on record. Read that again. It sounds totally implausible, but here’s how it happened. As department stores, restaurants, and shops closed, consumer spending and employment in those places plummeted. But the federal government also passed the CARES Act, which distributed thousand-dollar checks to tens of millions of families and increased jobless benefits by $600 a week. As a result, the typical unemployment-insurance recipient has been earning 34 percent more than he or she did while working. With millions of Americans earning more in unemployment than they were at work, personal income soared in April by 10 percent.
The CARES Act, along with emergency moves by the Federal Reserve to shore up the financial sector, are almost certainly a major factor behind the stock-market recovery. For evidence, look at the timing of the S&P 500’s big reversal—the week after March 21. What happened that week? The Fed announced that it would do whatever it takes to avoid a financial collapse, and the president signed the CARES Act into law. Corporations and labor aren’t always aligned, but here they are: The federal bonanza has made both investors and workers richer.
Third, although retail is in the toilet, just about everything that has to do with housing is fine. New-home sales are higher than they were one year ago. Mortgage applications are higher than they were in late February. Grocery sales have boomed, and Wayfair furniture sales are up. Thumbtack, an online marketplace for independent workers such as yoga instructors and electricians, is showing a full recovery in home construction, home maintenance, and moves. With the physical economy shut down, American have been sent back to the 19th-century economy, before the boom in urban services, when families cooked, cleaned, worked, reared children, and cared for animals at home (recent pet-product sales are way up).
A profound message is lurking in these green shoots: The plague economy is extraordinarily unequal. Many high-income workers can afford to buy new homes because they are, for now, inoculated from the economic devastation by virtue of the fact that they can do their jobs from home. Remote work serves as an employment vaccine for a large swath of the white-collar workforce.
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Digital technology’s insulation from the physical world might be the most durable aspect of this crisis. Online spending on food, furniture, and home appliances have increased in tandem with remote-working software, such as Zoom and Skype. That explains why a handful of tech companies—like Microsoft, Apple, Amazon, Google, Facebook, Cisco Systems, and Adobe—have driven almost all of the stock market’s gains this year. But even cloud-based firms are tethered to the earthbound economy. Media layoffs and Big Tech hiring freezes show how the downturn could hurt a lot of white-collar workers.
The theme that ties all of these stories together is divergence. Consumer spending has diverged from consumer income. The at-home economy has diverged from the out-of-home economy. The stock market has diverged from the labor market. And the technology sector has, for now, accelerated into the future, breaking away from many other publicly traded companies. If you’re confused about the economy, I don’t blame you. What I can tell you is that today’s economy is that of 1830, 1930, and 2030, all at once. The question I cannot answer is: What year will it be tomorrow?