Strategy Insight: Some Kind of Way Out of Here

April 21, 2020
BBH Chief Investment Strategist Scott Clemons reviews recent economic data and discusses the next stages required to return the economy to its previous capacity.

As data releases catch up with rapidly evolving reality, the economic toll of the national response to the COVID-19 pandemic is becoming more evident. Economic activity in the nation’s hardest-hit areas has practically ground to a halt. The New York Federal Reserve’s survey of manufacturing conditions for the Empire State fell to -78.2 in April, almost double the decline of the global financial crisis. A similar survey conducted by the Philadelphia Federal Reserve was not much better, dropping to -56.6. The rapidity of this decline is as astonishing as the extent, underscoring just how quickly social distancing measures curtailed economic activity in March and April.

Charts illustrating manufacturing sentiment surveys for NY Fed and Philadelphia Fed, both with downward trajectory.


On a national basis, the pain is most evident in initial claims for unemployment. Over the past four weeks, more than 22 million people have filed for unemployment insurance. That figure is almost three times the number of jobs lost throughout the entirety of the 2008-09 global financial crisis and represents over 14% of the labor force. When added to the March unemployment rate of 4.4%, this indicates that true unemployment is running closer to 18% at present.

 Chart depicting weekly initial claims for unemployment, showing an extreme spike around Q1 2020.


Not surprisingly, retail sales are dropping sharply as well. Total sales fell 8.7% from March to April, far exceeding any month in the 2008-09 recession, as increasing portions of the population became housebound. Some parts of the retail landscape fared better than others. Food and beverage stores were up 26% for the month, as people are eating (and drinking) at home. Not surprisingly, restaurants and bars experienced a 27% drop in sales. Auto sales were down 26%, furniture and home goods were down 27%, and clothing stores dropped 51%. The disruption is unprecedented and unimaginable.

Chart illustrating month-over-month retail sales growth from 2005 to March 2020, with a spike downward around Q1 2020.


Other economic releases over the past few weeks tell a similar story. Industrial production fell 5.4% from March to April, new housing starts in March slumped by 350,000 units on an annualized basis, and consumer confidence measures all gapped lower. There are many economic graphs that point either straight up or straight down.

“There must be some kind of way out of here,” sang Nobel laureate Bob Dylan in the opening line of “All Along the Watchtower,” (although most people know Jimi Hendrix’s iconic version better). Indeed, as the first phase of the public healthcare crisis appears to be receding, politicians and businesspeople are turning their attention to what it will take to get out of here and return (safely) to a fully functioning economy.

Success ultimately takes the form of a widely available vaccine, and the good news is that there are, according to the Milken Institute, 87 vaccines in various stages of clinical and preclinical trials. At the same time, there are 149 therapeutic solutions in development, ranging from the use of antibodies from COVID-19 survivors, to antivirals (such as Gilead’s remdesivir, already in Phase 3 trials), cell-based therapies and RNA-based treatments.1 Even before a vaccine is available, better treatments for the symptoms of COVID-19 would bring down hospitalization and mortality rates as well as relieve the potential burden that future outbreaks might impose on the public health sector.

This is encouraging progress and, in turn, encourages the political and economic discussion on when it will be safe to resume more normal economic activity. The political debate on rebooting the economy is as old as the 10th Amendment to the Constitution: Since 1791, states have routinely clashed with the federal government over who has what authority. It seems that the outcome of the current debate will be federally determined guidelines that will ultimately be up to the states to implement. In recognition of the decision of some states to coordinate responses regionally, the White House last week proposed the following “gating criteria” to be applied at either the state or regional level.

Proposed State or Regional Gating Criteria
Satisfy Before Proceeding to Phased Comeback
Symptoms Cases Hospitals
  • Downward trajectory of influenza-like illnesses (ILI) reported within a 14-day period


  • Downward trajectory of COVID-like syndromic cases reported within a 14-day period
  • Downward trajectory of documents cases within a 14-day period


  • Downward trajectory of positive tests as a percent of total tests within a 14-day period (flat or increasing volume of tests)
  • Treat all patients without crisis care


  • Robust testing program in place for at-risk healthcare workers, including emerging antibody testing
Source: The White House and BBH Analysis

The intent of these guidelines is clear. A staged resumption of economic activity depends on evidence that the incidence of COVID-19 is declining, that testing is in place to identify ensuing outbreaks quickly and that hospitals are able to safely handle any future cases that might arise. The federal guidelines propose assessing these trends over discrete 14-day periods before proceeding to subsequent phases of economic resumption.

Once a state or region has satisfied these conditions for 14 days, it can implement the first phase of the staged plan, ease social distancing measures and reopen some parts of its economy. Another 14 days of progress enables a move to phase two, and then an additional 14 days results in a phase three return to business as usual.2

The Return to Business as Usual
After 14 days of progress on gating criteria ... After an additional 14 days ... After an additional 14 days ...
Phase 1 Phase 2 Phase 3
  • At-risk population continues to shelter in place
  • Maintain social distancing
  • Minimize nonessential travel
  • Schools and camps remain closed
  • Work from home as much as possible
  • Large venues require strict social distancing measures
  • Bars remain closed
  • At-risk population continues to shelter in place
  • Maintain social distancing
  • Nonessential travel can resume
  • Schools and camps reopen
  • Encourage telework
  • Large venues require moderate social distancing measures
  • Bars reopen with social distancing
  • At-risk population maintains social distancing in public
  • Retain enhanced hygiene
  • No contraints on travel
  • Schools and camps open
  • Unrestricted staffing of worksites
  • Large venues require limited social distancing measures
  • Bars open
Source: The White House and BBH Analysis

This works better on paper than in practice. We still lack the widespread testing that is necessary to fulfill some of the gating criteria outlined by the White House. As of yet, we do not have the broad ability to identify who remains at risk and who, by virtue of having certain antibodies, may have some degree of immunity. Safely bringing employees back to a central workplace requires this information. More robust testing would furthermore allow us to identify and mitigate subsequent outbreaks quickly, thereby stopping future spread and ensuring early treatment for those exposed. Currently, we have no means of monitoring and tracing contact so that exposed people can be notified, quarantined and treated.

Each region, state and employer will have its own version of a plan to return to normal. Areas that are less affected will likely return to full economic activity more rapidly, while dense urban areas that rely on public transportation may take longer. Maintaining social distancing comes easily for some businesses and is impossible for others. There isn’t a single plan; there will be as many plans as there are businesses.

Turning the economy off was relatively easy. Turning it back on will be hard.

1 See
2 See for the details of these proposals.

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