Monday numbers: A closer look at NC’s deeply uneven economic recovery and an important tool for making it work better

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There have been countless shortcomings in the responses of federal and state officials to the COVID-19 crisis over the past year and a half, but things have also improved dramatically since President Biden took office. Here’s a very practical example:

Thanks to the American Rescue Plan and the efforts of the Gov. Cooper administration, hundreds of thousands of low-income households in North Carolina are receiving enhanced SNAP food assistance benefits and the extra help is taking big bite out of hunger.

According to the most recent data, nearly 800,000 North Carolinians will receive more than $138 million of extra food credit this month, which researchers at NC State say will have a substantial and positive impact on everyday lives and in reducing food insecurity.

Biden and Cooper have also done their part to keep unemployment insurance benefits flowing, limit evictions and, of course, promote the ultimate key to a return to normal: mass COVID-19 vaccinations.

Despite these helpful actions, however, it remains clear that many North Carolinians continue to struggle mightily, and that the economic recovery in our state is deeply uneven.

As the latest edition of the N.C. Budget & Tax Center’s “Prosperity Watch” series makes clear (“Data shows too many in NC still struggle to pay for food, rent, and basic expenses”), for a large segment of the state’s households, the economic recovery has yet to occur.

Here are some of the numbers that report author Christopher Chaves gleaned from recent installments of the Census Bureau’s Household Pulse Survey:

12% – share of NC adults living with children who report that their household sometimes or often does not have enough to eat

10% – share of all adults making such a report

700,000 – number of adults this represents

2x – nationwide, the degree to which Black and Latinx adults are more likely to experience this hardship than white adults

17% – share of North Carolina renters who reported that their household was behind on rent

400,000 – number of renters this represents

28% – share of North Carolina adults who reported that their household sometimes or often had trouble affording usual expenses in the past seven days

2 million – number of adults this represents

2x – nationwide, the degree to which Black and Latinx adults are more likely to experience these hardships than white adults

And here are some additional numbers about the current hunger crisis in North Carolina as recently reported by Policy Watch investigative reporter Lynn Bonner and Budget & Tax Center analyst Heba Atwa:

$123 – amount added to the monthly incomes of families receiving SNAP benefits as a result of program enhancements put in place in 2020 and 2021

-2.2% – amount that U.S. food insecurity declined the last time enhanced benefits of this kind were approved in Washington in 2008-2009

7.3 million – number of Americans who are lifted out of poverty by the SNAP program

80% – share of SNAP benefits that flow into the economy within two weeks of their receipt

97% – share that flow within a month

$1.70 – amount by which every dollar in new SNAP benefits increases Gross Domestic Product

2018 – year in which a Duke University study identified a notable and positive relationship between a family’s receipt of SNAP benefits and the performance of children in that family on public school end-of-grade tests

Slowing economic recovery in China is a warning sign to the world

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Economy was expected to descend from its recent heights, but the softening comes sooner than expected.

China’s V-shaped economic rebound from the Covid-19 pandemic is slowing, sending a warning to the rest of world about how durable their own recoveries will prove to be.

The changing outlook was underscored Friday when the People’s Bank of China cut the amount of cash most banks must hold in reserve in order to boost lending. While the PBOC said the move isn’t a renewed stimulus push, the breadth of the 50 basis-point cut to most banks reserve ratio requirement came as a surprise.

Data on Thursday is expected to show growth eased in the second quarter to 8% from the record gain of 18.3% in the first quarter, according to a Bloomberg poll of economists. Key readings of retail sales, industrial production and fixed asset investment are all set to moderate too.

The PBOC’s swift move to lower banks’ RRR is one way of making sure the recovery plateaus from here, rather then stumbles.

The economy was always expected to descend from the heights hit during its initial rebound and as last year’s low base effect washes out. But economists say the softening has come sooner than expected, and could now ripple across the world.

“There is no doubt that the impact of a slowing China on the global economy will be bigger than it was five years ago,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “China’s ‘first-in, first-out’ status from Covid-19 could also influence market expectations that if China’s economy is cooling now, others will soon follow.”

Group of 20 finance ministers meeting in Venice on Saturday signaled alarm over threats that could derail a fragile global recovery, saying new variants of the coronavirus and an uneven pace of vaccination could undermine a brightening outlook for the world economy. China’s state media also cited several analysts Monday saying domestic growth will slow in the second half because of an uncertain global recovery.

China’s slowing recovery also reinforces the view that factory inflation has likely peaked and commodity prices could moderate further.

“China’s growth slowdown should mean near-term disinflation pressures globally, particularly on demand for industrial metals and capital goods,” said Wei Yao, chief economist for the Asia Pacific at Societe Generale SA.

The changing outlook reflects the advanced stage of China’s recovery as growth stabilizes, according to Bloomberg Economics.

Domestically, the big puzzle continues to be why retail sales are still soft given the virus remains under control. It’s likely that sales slowed again in June, according to Bloomberg Economics, as sentiment was weighed by controls to contain sporadic outbreaks of the virus.

Even with the PBOC’s support for small and mid-sized businesses, there’s no sign of a broad reversal in the disciplined stimulus approach authorities have taken since the crisis began.

The RRR cut was partially to “manage expectations” ahead of the second-quarter economic data this week, said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.

“It also provides more policy room going forward, as the momentum of the economic recovery has surely slowed.”

How soon the economic recovery? (Part 1)

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No matter how I try to be the usual optimist I have always been about the Philippine economy, I cannot see the Philippine GDP recovering to its pre-pandemic level (2019) till the first semester of 2023. Even worse, I do not see the poverty incidence falling again to the pre-pandemic 16.5 percent till 2025. This uncharacteristic pessimism of mine is due to my assessment that we will continue to see more surges of COVID-19 in even more deadly forms until we reach herd immunity in late 2022. By mid-year of 2021, the Philippines ranks worst in East Asia in the rate of vaccination at a very low 2.3 percent. In East Asia, it has the second highest death rate per million (after Indonesia) of total population. Realistic forecast from health experts put herd immunity in the Philippines to be reached only in late 2022. The fact that countries like Taiwan and Indonesia that were able to manage the pandemic better than we did at the beginning are now seriously threatened with new surges of the virus makes me expect more lockdowns of important economic regions of the Philippines before the end of 2021. Even as it seems that the rate of infection in the Metro Manila area is declining, we are seeing surges in other cities like Davao, Iloilo, Dumaguete, Bacolod, Baguio, Cagayan de Oro and other major economic centers. The greatest threat comes from the Delta variant that originated from India. This is considered the most worrying because it is said to be 50% to 60% more infectious and may cause a more severe disease. When the Indian variant first appeared in the UK at the start of April this year, it rapidly overcame the Alpha variant and now accounts for 90 per cent of new cases. Because of the very slow process of vaccinating the population, either because of logistical problems, vaccine scare or mismanagement (there were some P18.4 billion of unused allocations that are reverting back to treasury), it is highly probable that in the remaining months of 2021, we may still experience more lockdowns in key regions of the Philippines which will definitely take a hit on incomes and employment. I also worry because our Filipino workers abroad, especially in the Middle East, have a lot of physical contact with their fellow overseas workers from India. In my frequent trips in the past to places like Dubai and Qatar, I used to observe that in the Catholic churches, the most numerous church goers are Indians and Filipinos. There is high probability that some returning OFWs can bring the Delta variant with them.

We cannot let our guard down even as countries like Singapore take the optimistic view that COVID-19 should be treated like a regular recurring epidemic such as the flu or chicken pox. This sanguine view could lead to the dismantling of such safety measures as social distancing, the wearing of face masks and frequent washings of hands. The World Health Organization (WHO) reported in early July 2021 that our COVID-19 case total of over 1.4 million is the highest among all countries in the Western Pacific region. The WHO tallied 1,408,058 infections in the Philippines, putting us at the top spot among 24 countries that reported COVID-19 infections in the Western Pacific. The tally is nearly double the cases confirmed in Japan, which ranked second with over 798,000, a number that is putting the Olympics at risk of cancellation in late July. Other countries with high rates of infection are Malaysia, South Korea and China. It is understandable that Bloomberg reports that the Philippines is placed at the second to the lowest spot among 53 nations in economic recovery.

Because of expected recurring lockdowns during the second half of 2021, the best we can do for this year is for our GDP to grow at 4 percent for the whole year. It is difficult to share the very understandable optimism of Socioeconomic Planning Secretary Karl Chua who expects a big jump of GDP in the second quarter, albeit mostly from base effect since the second quarter of 2020 saw a 9.6 percent decline in GDP. I tend to agree with my colleagues at the University of Asia and the Pacific and the Fist Metro Investment Corporation (FMIC) that the weak labor print in April 2021 coupled with the extended restrictions in Metro Manila and nearby provinces most probably squeezed consumer sending during the second quarter. Although data on exports, imports and production in the beginning of the second quarter prompted speculations about “green shoots” appearing, the reimposition of lockdowns has reversed the gains. Negative signs were the unemployment rate at 7.7 percent with 3.37 million unemployed Filipinos and 12.3 percent or 5.49 million underemployed in May 2021. Because I expect more lockdowns in the third quarter as a result of the very slow rate of vaccination and the appearance of more infectious variants of COVID-19, one cannot expect too much growth in the third quarter. Secretary Chua qualifies his optimism for the second half by stating that “prospects are good if we do three things: manage risks and open the economy, implement the entire recovery program and vaccinate more and more”. I am afraid it will be very difficult to do well on all three fronts, especially as the political circus begins in October with the declaration of the official candidates for the May 2022 national elections.

We can only expect most of the real growth (not base effect growth) to come in the last quarter, thanks to the usual Christmas-related spending and the beginning of campaigns for the elections scheduled for May 2022. Because of the prevalence of social marketing tools in promoting the various candidates (especially trolling), however, the usual spending by the political candidates may not be as big as before. The two sectors on which we can rely to equip the population with mass purchasing power are the remittances from the Overseas Filipinos and the BPO-IT industry. The former has already shown an increase of 5 percent in the first six months of the year while the latter is rapidly recovering, as its main market, the U.S., is already experiencing strong growth. Unfortunately, the impact of these dollar-earning sectors has been partly muted in the first half of 2021 because of the strong peso. To the relatives of the OFWs and BPO-IT workers, a foreign exchange rate of P50 to $1 is obviously more desirable than P47 or P48 to $1. Thankfully, in early July 2021, the peso has devalued to P49 to $1 as hopes for a further reopening of the economy boosted demand for the U.S. dollar coupled with continuing worries about more surges of the virus. It seems though that in the near term the peso will continue to be overvalued because of the minimal increase in imports and the weakening U.S. dollar. The saving grace of a “strong” peso is that inflation may be contained at the level of 4.5 to 5.0 percent. A strong peso (which makes imports cheaper) is a counterweight to the rapid increase in the price of oil that has already exceeded $70 per barrel and the increases in hog prices due to the swine fever that has hit the industry.

Also contributing to the recovery in the fourth quarter of 2021 will be the 11 flagship projects of the Government that are being completed or will partially open in 2021. Another 29 flagship projects, amounting to P236 billion are projected to be spent in 2022. With the end of the rainy season in the fourth quarter, the Build, Build, Build initiative is getting back on track. The Government is expected to spend some P1.02 trillion by the end of 2021 and another P1.25 trillion in 2022. These amount to more than 5 to 6 percent of GDP, a significant increase compared to the average of 2 to 3 percent in previous Administrations. The Government is disbursing P1.02 trillion for infrastructure in 2021. Among the large projects are those that are going to be funded by the private sector through Public Private Partnership (PPP). The most notable among these is the P735.7 billion New Manila International Airport in Bulacan which will be rising in a 2,500 hectare property and will have enough capacity to serve some 100 million passengers annually, or three times the capacity of NAIA. Funded by San Miguel Corporation, groundbreaking is expected before the end of 2021. Other projects that can contribute to the recovery during the fourth quarter of this year are the North-South Commuter Railway Extension which aims to seamlessly integrate a three-way commuter rail system linking Metro Manila to the major provinces of Laguna, Pampanga and Bulacan; the P149.1 billion Philippine National Railway North 1, a 38-km line from Tutuban, Manila to Malolos, Bulacan which is part of the NCSR system; and the P11-billion New Cebu International Container Port (NCICP) which will be built on a 25-hectare reclaimed area in Barangay Tayud, Consolacion town in northern Cebu which is expected to have its groundbreaking in August 2021. Funding of the NCICP will be through Korea’s Official Development Assistance (ODA). (To be continued.)For comments. my email address is [email protected].

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