The Finance 202: Economy won't bounce back until 2022 even with good vaccine rollout, new report finds

It flies in the face of President Trump's claim, repeated at a Pennsylvania rally Tuesday night, that the nation is “rounding the turn” on the coronavirus pandemic, which he said is “ending.” Health professionals roundly disagree as a third wave of infections rises across the country.

Under the Boston Consulting Group’s most likely scenario of the U.S. health response to the crisis, a “good-but-not-great rollout [of a vaccine] delays defeating the pandemic by about six months, until the first quarter of 2022,” according to the report, previewed here exclusively. And the firm presents an even darker timeline in which less effective trials, delayed authorization and distribution of the vaccines mean the pandemic continues for another two years. In this bear case, “little proceeds as planned.”

BCG chief executive Rich Lesser tells me his own view is that Americans need to brace for another full year of our suspended new normal. “I expect a year from now there will be a lot of reasons to be optimistic, and we'll go into next winter feeling very different than we’re going into this winter,” says Lesser, who advises other CEOs on their pandemic responses through the Business Roundtable.

Approving vaccines is only the beginning of the next challenge. 

While many investors remain fixated on the latest updates from flailing stimulus talks in Washington, the BCG report shows the country faces a long, steep climb back from the hole the pandemic has blown in the economy. 

Once regulators sign off on usable vaccines, Lesser notes leaders need to “manage distribution, get people to trust them enough to take it, and effectively deal with the health situation in between," before economic activity can snap back to pre-pandemic levels.

Given how badly the Trump administration has managed its crisis response this year, it's not difficult to imagine BCG's worst-case scenario unfolding.

Under that case, only one vaccine becomes available by the end of the year. “It is moderately effective, but the rollout is largely inefficient, including manufacturing, distribution, and administration,” the firm's report says. “Last-mile challenges generate waste. Poor communication and record keeping lead to many individuals missing their second dose. A second vaccine is approved but not until mid-2021,” and subsequent waves of the virus emerge. 

Indeed, the arrival of vaccines may not even herald the beginning of the end.

My colleague Paige Cunningham has reported that industry vaccine experts expect the Food and Drug Administration to grant initial approval to vaccinate just front-line health workers, those older than 65 and those with underlying medical conditions under the emergency use authorization as large clinical trials continue. Full approval to distribute a vaccine to everyone else could take another six months beyond that. 

Getting the vaccine out will be another challenge entirely. “Rapidly distributing a safe and effective vaccine across the nation is likely to be one of the most significant logistical challenges ever undertaken by the government within our borders,” Kenneth Gorelick, a pulmonary disease specialist with 35 years experience in drug development, recently wrote in The Post.

Zeroing in on a Pfizer vaccine that would require storage at very low temperatures, Gorelick estimates that “even if there are no snafus and each of the approximately 7,000 U.S. hospitals has an ultracold freezer, they will need to vaccinate 142 million Americans two times, one for each dose.” That translates to "40,000 visits or nearly 800 per week at each hospital. All the while, those facilities will also need to continue to provide routine care, including to patients who have already been infected with the coronavirus.”

The supply chain issues alone, he concludes, are “of an unprecedented magnitude. While all Americans hope that everything will go well, it is really too much to hope for.” 

Corporations report the pandemic is prompting permanent changes in how they operate.

With the end of the crisis still months away at best, 64 percent of corporate decision-makers surveyed by S&P Global Market Intelligence said they are making permanent a significant increase in remote working. And one third say they will permanently shrink their office footprint accordingly, according to the survey, out today.

For BCG’s part, “a very small fraction” of the company’s roughly 21,000 workers are back in their offices around the world, depending on the health situations on the ground, according to Lesser.

“At least for quite a while, I can't see us telling people they have to be back,” he says. “Frankly, many of our teams function quite well in this mode. But it can't be forever.”

Latest on the federal pandemic response

Mitch McConnell tells the White House not to make a deal.

The majority leader wants the focus to be on confirming Judge Amy Coney Barrett: “Prospects for an economic relief package in the next two weeks dimmed markedly after McConnell revealed that he has warned the White House not to strike an agreement with House Speaker Nancy Pelosi before the election,” Jeff Stein and Erica Werner report.

“In remarks at a closed-door Senate GOP lunch, McConnell told his colleagues that Pelosi is not negotiating in good faith with Treasury Secretary Steven Mnuchin, and that any deal they reach could disrupt the Senate’s plans to confirm Barrett to the Supreme Court next week … McConnell told reporters Tuesday that if a deal were reached and passed by the House with Trump’s support, he would put it on the Senate floor ‘at some point’ — but he did not commit to doing so before the election.”

• Meanwhile, Pelosi and Mnuchin continue to talk: They spoke for 45 minutes in the afternoon, “as they wrangled over sticking points including liability protections for businesses and state and local aid. Pelosi had said that if they are going to vote on a deal by the end of next week, they need to agree on specific language by the end of this week.”

What's next, per Pelosi's spokesman:

Market movers

Stocks rally as stimulus negotiations inch forward.

The Dow closed up 100 points as Wall Street continues to pine for a deal: “The 30-stock average was briefly up more than 300 points. The S&P 500 gained 0.5 percent to end the day at 3,443.12 and the Nasdaq Composite advanced 0.3 percent to 11,516.49,” CNBC's Fred Imbert and Jesse Pound reports.

“Shares of Carnival Corp. and American Airlines rose 3.3 percent and 1.9 percent, respectively, as company groups that would benefit the most from the economy reopening led the way higher. Kohl’s jumped 6.6 percent and Nordstrom advanced 1.2 percent.”

Coronavirus fallout

From The U.S.:

• At least 8,290,000 cases have been reported; at least 220,000 have died. 
• The pandemic has caused nearly 300,000 more deaths than expected in a typical year: “The CDC said the novel coronavirus, which causes covid-19, has taken a disproportionate toll on Latinos and Blacks, as previous analyses have noted. But the CDC also found, surprisingly, that it has struck 25- to 44-year-olds very hard: Their ‘excess death’ rate is up 26.5 percent over previous years, the largest change for any age group,” Lenny Bernstein reports.
• New Mexico announces new restrictions as hospital bed capacity reaches 81 percent: “ Starting Friday, restaurants, gyms, and stores must shut down for a two-week period if they report four coronavirus cases in 14 days or less. If that restriction were in place today, 42 businesses across the state would be closed …,” Antonia Farzan reports.
• There's a property gold rush happening in Montana: “It’s multimillionaires grabbing up luxury ranches to serve as second or third homes. It’s buyers with more modest resources looking for a way out. It’s city dwellers seeking bare land in Montana’s wilderness to serve as insurance policies for America’s uncertain future,” Lisa Rein reports from Bozeman.

From the corporate front:

• Proctor and Gamble reports biggest sales increase in 15 years: “Even as the economic picture grew bleaker around the world, the maker of Tide detergent and Gillette razors said demand grew for pricier products. It logged the strongest growth in the unit that sells Swiffer mops and Dawn dish soaps,” the Wall Street Journal's Sharon Terlep and Saabira Chaudhuri report.
• Netflix new subscriber signups plummeted: “The streaming company had seen massive subscriber spikes since early 2020, gaining 16 million global subscribers in the quarter ending in March, as stay-at-home orders dominated in Europe and began taking hold in the United States … But July, August and September — historically a strong quarter for Netflix — saw much slower growth, including just 177,000 adds in the United States,” Steven Zeitchik reports.
• JCPenney expects to exit Chapter 11 ahead of holiday season: “The department store chain said … that it has taken another step toward a sale to U.S. mall owners Brookfield Property Partners and Simon Property Group,” CNBC's Melissa Repko reports.

Trump tracker

Trump maintains a previously undisclosed bank account in China. 

The president didn't report the account on federal disclosures. “It turns out that China is one of only three foreign nations — the others are Britain and Ireland — where Mr. Trump maintains a bank account, according to an analysis of the president’s tax records, which were obtained by The New York Times,” the NYT's Mike McIntire, Russ Buettner, and Susanne Craig report. 

“The foreign accounts do not show up on Mr. Trump’s public financial disclosures, where he must list personal assets, because they are held under corporate names. The identities of the financial institutions are not clear. The Chinese account is controlled by Trump International Hotels Management L.L.C., which the tax records show paid $188,561 in taxes in China while pursuing licensing deals there from 2013 to 2015.

"The tax records do not include details on how much money may have passed through the overseas accounts, though the Internal Revenue Service does require filers to report the portion of their income derived from other countries."

Some White House officials are aghast over a lucrative 5G spectrum contract: “Senior officials throughout various departments and agencies of the Trump administration say they are alarmed at White House pressure to grant what would essentially be a no-bid contract to lease the Department of Defense's mid-band spectrum — premium real estate for the booming and lucrative 5G market — to Rivada Networks, a company in which prominent Republicans and supporters of Trump have investments,” CNN's Jake Tapper reports.

“The pressure campaign to fast track Rivada's ‘Request for Proposal’ (RFP) by using authorities that would preclude a competitive bidding process intensified in September, and has been led by White House chief of staff Mark Meadows, who was acting at Trump's behest … Trump was encouraged to help Rivada by Fox News commentator and veteran GOP strategist Karl Rove, a lobbyist for, and investor in, Rivada.” 

Campaign 2020

Voters prefer Joe Biden to President Trump on almost every issue.

A new national poll illustrates the president's continuing struggles: Biden "holds a nine-point lead over Trump amid widespread public alarm about the trajectory of the pandemic and demand among voters for large-scale government action to right the economy, according to a national poll of likely voters conducted by the New York Times and Siena College,” the Times's Alexander Burns and Jonathan Martin report.

“The president has even lost his longstanding advantage on economic matters: Voters are now evenly split on whether they have more trust in him or Mr. Biden to manage the economy.”

From AEI's Jim Pethokoukis:

Biden is flush with cash; Trump has far less: “ Biden entered October with nearly three times as much cash as Trump, amassing a major financial advantage for his campaign committee thanks to an injection of cash from Democratic donors …,” Michelle Ye Hee Lee and Anu Narayanswamy report.

“Biden’s campaign committee entered October with an estimated $180 million compared with Trump’s $63 million, according to federal filings made public Tuesday night — a dramatic reversal in financial resources that unfolded in recent months as Democratic donors in September poured a record amount of money into supporting Biden.”

Automakers begin preparing for a Biden presidency: “If elected, Biden is expected to quickly reinstate the legal basis for California’s zero-emission vehicle rules and begin the process of reversing the Trump administration’s decision to ease fuel efficiency and carbon emission requirements through 2025,” Reuters's David Shepardson and Tina Bellon report.

“Automakers could also face sharply higher penalties for failing to meet fuel-efficiency requirements … However, Biden’s positions offer the auto industry some offsetting gains … Biden promises new tax incentives including rebates to buy EVs and a dramatic expansion of charging stations for electric vehicles — policy measures automakers have long advocated.”

• Uber weighs major changes if its California-backed ballot initiative fails: “We are looking at all our options,” Uber Chief Executive Dara Khosrowshahi said …, the WSJ's Preetika Rana reports. “Uber and its peers have said [a law set to go into effect on Jan. 1] would force them to make drivers work pre-scheduled shifts, robbing them of the flexibility they currently enjoy. Uber has said it would be able to hire just a fraction of its more than 200,000 drivers. Khosrowshahi said prices for consumers would rise between 25 percent and 100 percent.”

Pocket change

Goldman Sachs is expected to pay nearly $3 billion to settle 1MDB scandal.

The settlement caps one of the most embarrassing moments in the company's history: The bank will pay “about $2.8 billion and admit wrongdoing to end a bribery probe that stretched from Southeast Asia to Hollywood and reinforced a reputation for scandal that the Wall Street firm has spent years trying to shed,” the WSJ's Dave Michaels, Liz Hoffman and Bradley Hope report.

“The settlement with the Justice Department, expected as soon as this week, would resolve an investigation into Goldman’s work for a corrupt Malaysian government fund known as 1MDB …  All in, the 1MDB scandal will cost the firm more than $5 billion to resolve, about two-thirds of a year’s profits. But Goldman will avoid the harshest sanctions that prosecutors had sought and has already accounted for the penalties in its financial reports to shareholders. Its shares rose 1.1 percent Tuesday.”

Berkshire Hathaway fined for alleged Iran sanctions violations: “A foreign subsidiary of Berkshire Hathaway appears to have violated US sanctions on Iran, the Treasury Department said …” CNN Business's Matt Egan reports.

“Berkshire, the conglomerate run by the legendary investor Warren Buffett, voluntarily disclosed the conduct and agreed to pay $4.1 million to settle its potential civil liability over the matter."

Racial-Discrimination Settlements Usually Came With an NDA. That’s Changing. (WSJ)

The regulators

The Justice Department sues Google over antitrust issues.

The landmark lawsuit ends a roughly year-long probe: “The Justice Department sued Google over allegations that its search and advertising empire violated federal antitrust laws, launching what is likely to be a lengthy, bruising legal fight between Washington and Silicon Valley that could have vast implications for the entire tech industry,” Tony Romm reports.

“The complaint contends that Google relied on a mix of special agreements and other problematic business practices to secure an insurmountable lead in online search, capturing the market for nearly 90 percent of all queries in the United States … In bringing its case, the Justice Department did not explicitly ask a judge to break apart Google. Instead, it urged the court to consider ‘structural relief,’ which theoretically could include a requirement that the company sell a portion of its business and cease other practices that federal regulators see as harmful and unlawful.”

Chart topper

From University of Michigan economist Justin Wolfers:

Daybook

Today:

• Tesla, Verizon Communications, Chipotle Mexican Grill, Whirlpool and Abbott Laboratories are the notable companies reporting their earnings, per Kiplinger

Thursday:

• The final presidential debate is held in Nashville 
• American Airlines, Coca-Cola, AT&T, Southwest Airlines, Union Pacific and Mattel are the notable companies reporting their earnings

Friday:

• American Express and Bloomin' Brands are the notable companies reporting their earnings

The funnies

Bull session