3 State Level Tax Hikes That Might Be Coming Due to COVID-19

3 State Level Tax Hikes That Might Be Coming Due to COVID-19No surprise, but Americans are consuming and spending less since the coronavirus kicked in.  Retail sales dropped to 8.7 percent in March, the largest month-over-month decline since the Census Bureau started tracking this data. Previously, the sharpest decline was less than half this – at 3.9 percent from October 2008 to November 2008, during the previous economic crisis. The reduction in consumer spending is due in part to lockdowns, spending more time at home for fear of the virus, and the economic impact – whether it’s losing a job, reduced hours, or in anticipation of tougher times ahead.

While consumer spending is down at a net level, there appear to be some winners and some losers in the post-COVID world of staying in and working from home. Restaurants and apparel are the hardest hit, whereas online retailers, home, garden, grocery, and alcohol sales are all up.

The decline and shift in consumer spending are having a strong negative impact on state sales tax revenues. Nationwide, sales taxes account for approximately 20 percent of all state revenue, so the decline in consumer spending will have a material impact on state budgets. As a result, states are looking at new ways to generate or increase revenue to offset the trend. Below we’ll look at three ways states are looking to raise taxes to make up for holes in their budgets.

Grocery Staples 

Eating out less and working from home mean Americans are spending more at the grocery store; approximately 13 percent more year-over-year, per Census data. The issue for states is that groceries are generally not taxed or low-taxed, although there are a few items that apply the full tax rate.

Kansas, for example, applies the full sales tax rate to groceries. The consequence of this is that grocery sales make up about 15 percent of Kansas’ total sales tax revenue. The consequence of this policy is that the state’s sales tax revenue has barely taken a hit year-to-date.

States are taking notice and may move to the trend of taxing groceries as a way to recover part of their declining sales tax revenues.

Digital Taxes

Another trend is the increase in streaming services and one-time rentals/purchases of digital goods for entertainment and working at home. Currently, 22 states tax streaming services, and 30 states tax digital goods. Other states will look to start taxing these services as well, and digital taxes will start to expand into cloud storage and other services as more people work remotely.

Sin Taxes

Sin taxes are taxes on goods and services that are “bad” for us; think alcohol, tobacco, gambling, and marijuana (where it’s legal). Increases in sin taxes are generally easier to pass as they don’t apply to the overall general population and politicians can play the moral angle.

During the last recession, for example, lawmakers in more than 12 states increased tobacco and liquor taxes. Newer sin taxes are being instituted, such as those on vaping equipment and supplies.

Conclusion

The exact form and structure will vary, but one thing is certain: States will institute or increase taxes in areas where the money is being spent to ensure their sales tax revenue remains stable. 

Three Strategies Companies Can Implement to Recover Faster

Business COVID-19 Recover FasterSmall businesses nationwide were already facing cash problems before the COVID-19 pandemic, according to McKinsey & Company. The firm found that almost one-third of small businesses were either seeing losses or making just enough to stay in business, but not realizing profitability.

Looking at businesses selling essential and non-essential items, McKinsey & Company reports that before satisfying their “interest, taxes, depreciation and amortization” obligations and accountings, they were facing challenging times. When it comes to selling essential items, such as food, business owners in this industry only had margins of 5 percent. For businesses selling non-essential items, this sector saw margins of less than 10 percent.

Restaurants provide an example of one way that outfits can pivot and increase margins by modifying their business models. While the Harvard Business Review (HBR) explains that restaurants have created additional seating near the kitchen to maintain social distancing, other examples of business model changes include increasing takeout, delivery, and catering as a way to increase sales for businesses with limited in-store dining.

While these ideas are simply expanding upon existing models to make up for lost in-dining experiences, HBR offers another way that a restaurant can better distinguish its establishment: developing a subscription model for customers. By slimming down menu choices for more efficient and faster preparation, restaurants could give customers the option to receive a certain number of meals per week or day for a fixed price.

Increasing Margins

While there are different types of margins for business owners to keep an eye on, an important one is a gross margin and how it impacts a business’ bottom line. Since the onset of COVID-19, businesses have been trying to survive as we work our way through the pandemic.

Regardless of the type of product being sold, by reducing the number of options available to customers, businesses can increase their margins by still meeting customer demand for necessities while also getting better prices from their suppliers through larger orders. This strategy also can be applied with contract manufacturers.

Re-engineering products and the ingredients that go into them can help to increase margins. For example, if there is a variety of pre-packaged foods that sell for the same price, but there are specialty or costlier ingredients like meat instead of vegetables, pausing selling pre-packed meals with meat can increase profit margins.

McKinsey & Company explains that small businesses are able to increase their hygiene and safety protocols by encouraging and implementing contactless experiences. Along with reducing person-to-person contact by using mobile apps, restaurants also have made delivery and takeout a bigger part of their sales.

With small businesses like boutiques and farmers, HBR illustrates how these entities can explore different sales channels. With stores facing shortages and an inability to stock essential goods –  especially food items – small farmers saw an opportunity to reinvent their business models after restaurants and gourmet markets dropped purchases from them during the stay-at-home orders.

An investment in an online presence, shipping and logistics, and sustained sales and marketing efforts have real potential for businesses to become profitable as trends point to a direct-to-consumer model. However, going with a digital storefront such as Shopify and selling directly to retail customers, HBR pointed out that some farmers are able to capture local customers (15 miles or less). This shows how farmers have been able to migrate from one source of revenue to another.

While the pandemic is ongoing, these are just a few ways that companies can implement new strategies to generate cash flow and attempt to survive the COVID-19 pandemic. 

Sources

https://www.mckinsey.com/industries/public-and-social-sector/our-insights/us-small-business-recovery-after-the-covid-19-crisis

https://hbr.org/2020/07/how-businesses-have-successfully-pivoted-during-the-pandemic

How Will Monetary Policy Impact Markets Going Forward?

How Will Monetary Policy Impact The Stock Markets September 2020?With gold hitting $2,000 an ounce in recent days, coupled with the Federal Reserve’s monetary policy creating a lot of liquidity, how will markets perform for the rest of 2020 and beyond?

Based on a reading from the Federal Reserve’s minutes from its July 28 to July 29 meeting, the Fed remarked that the ongoing pandemic would continue to put a strain on the economy, slowing expansion and causing additional damage to the country’s monetary framework.

The Fed highlighted the nation’s GDP drop by 32.9 percent in the second quarter. While Q3 growth is expected to be positive, that was not quantified. Additionally, the Federal government’s debt has grown by $3 trillion since the onset of COVID-19, reaching $26.6 trillion. The release of these minutes sent stock prices downward and helped the U.S. dollar gain.

Forward guidance or communication to the general public and business owners of the Fed’s goals for inflation and unemployment target figures could be upgraded, but no time frame was given. More details on how the target range for the federal funds rate’s path would be appropriate at some point, per the Federal Open Market Committee’s (FOMC) minutes. How the target range of the federal funds rate evolves is outcome-based or based upon meeting certain economic goals before rates see further movement. For now, The Fed’s mandate is to ensure full employment and price stability.

The FOMC is expected to keep the current overnight borrowing rate between 0 percent and 0.25 percent until the U.S. economy has emerged from its current situation and on course to achieve the Committee’s maximum employment and price stability goals.

The July meeting kept short-term interest rates at near-zero because the economy is still not at its pre-pandemic economic activity levels. Given that COVID-19 has already impacted the jobs picture, the value of the U.S. dollar, and how well the economy is functioning already in the near term, the FOMC see the pandemic continuing to impact economic growth in the medium term.    

The Fed remarked that the U.S. Congress needs to pass another economic stimulus plan, especially when it comes to renewing unemployment insurance that recently expired. The FOMC meeting also noted that the Fed is not expected to purchase bonds to control yields on government bonds. However, it did speak to how it has played a role in buying bonds on the open market to support liquidity during the COVID-19 pandemic. 

The meeting also determined that bond purchases by the Fed grew by more than $2.5 trillion, increasing to $7 trillion – up from $4.4 trillion over the course of the coronavirus pandemic. While skepticism by the Fed’s FOMC members regarding the use of purchasing bonds to manipulate the government bond yield curve wasn’t given much consideration, it’s still noteworthy to explain this versus what many refer to as quantitative easing or QE.

If the Fed’s efforts to bring down short-term interest rates, the rate that banks earn on overnight deposits, to zero with no positive economic effects, another tool the Fed has is Yield Curve Control (YCC). Whatever longer-term rate the Fed has in mind, YCC would involve an ongoing campaign of buying long-term bonds to maintain rates below its target rate by increasing the bond’s price and lowering the bond’s longer-term rates.

This is in contrast to QE, where the Fed purchases a fixed amount of bonds from the open market. It’s done by central banks to increase the money supply in hopes of spurring spending and investing by Main Street. It’s an important tool that central banks rely on when rates are at or near zero. This helps banks with their reserve requirements, giving them more liquidity to provide more loans to consumers and commercial borrowers.

Quantitative Easing Considerations

As central banks increase the money supply, it can create inflation. If it does create inflation, but there’s no measurable economic growth, this can lead to stagflation.

It is noteworthy that QE and the resulting lending attempt to stimulate the economy is effective only if individuals and commercial operations take loans and use them to spend and invest in the economy.

QE also can devalue the currency. It can help domestic manufacturers export goods (because the currency is cheaper), and anything that’s imported is more expensive. Consumers are hit with higher prices for imported goods, along with domestic producers using higher-priced imported raw materials for their final products.

With the economy still facing the headwinds of the COVID-19 pandemic, the Fed has played a major role in stabilizing the economy. While the increase of liquidity has certainly provided a lifeline for the markets, the price of gold can be seen as a hedge against this liquidity – with inflation as one potential outcome. For the rest of 2020, The Fed will be ready and able to assist the markets but will leave lingering questions about the value of the U.S. and other global currencies. 

Tips for Retiring in the Next 10 Years

Tips for Retiring in the Next 10 YearsThe stock market continues to perform with relative resilience, despite the current economic decline. But to be clear, without 100 percent participation in the economy – in terms of small business job creation, consumer spending, and company growth and expansion – the stock market is apt to reposition prices to reflect slower growth. With no containment or control of the pandemic on the horizon, there is plenty of uncertainty associated with future financial planning.

Anyone looking to retire in the next 10 years or so may want to take a fresh look at their current retirement income plan. In fact, they might need a Plan A, B, and C in order to stay flexible – with C being the option to continue working longer. The following are portfolio tips to consider for a 10-year time frame until retirement.

Emergency Fund

If there was one financial tip worth following pre-pandemic, it was to have liquid cash savings of six months to a year’s worth of expenses available. Workers who did are probably pretty relieved about now if they lost their job or had hours reduced. Having substantial cash available can save you from raiding retirement accounts and/or your investment portfolio.

In preparation for retirement, that cash buffer is even more important. Some advisors recommend a liquid savings fund to cover one to three years’ worth of expenses. That’s because once you’re on a fixed income, you’re not likely to replenish that account. What it can do is supplement variable retirement income that is reliant on the markets. Having a cash buffer gives investments time to recover from temporary losses so you don’t have to plunder your principal.

Status of Social Security

While you may know what your benefit level is for retirement at a certain date, be aware that your benefit could change – even after you’ve retired. Recent research has found that thanks to the loss of FICA revenues resulting from COVID-19, the Social Security Trust Fund might run out of money four years earlier than predicted: as early as 2032. You may want to consider other forms of reliable income in case your benefits are reduced in the future.

Guaranteed Income

Speaking of reliable income, Olivia Mitchell, executive director of the Wharton School’s Pension Research Council, recommends that an annuity option become a staple in employer-sponsored retirement plans. Annuities generally offer an option for issuer-guaranteed income for life. With 10 years until retirement, allocating money to an annuity can help build a separate income stream to supplement Social Security benefits. Even if your employer doesn’t offer an annuity option in your 401(k) plan, you can purchase one separately using other assets.

Employer-Sponsored Retirement Plans

Speaking of the 401(k), consider that when this plan was first established in 1980, the marginal federal income tax rate was 43 percent. Today’s tax rates are historically quite low, so for the time being you might want to consider allocating more savings into a Roth IRA. This means you’ll pay taxes on that money at today’s low rates, but going forward it can grow tax-deferred and be withdrawn tax-free. But don’t leave money on the table if your employer offers a matching 401(k) contribution. Roth IRA contributions are limited to $7,000 (2020) and some deferred income can help reduce your taxes today – so plan accordingly.

Roth Conversion

By the same token, you may want to take advantage of today’s lower tax rates by converting at least some traditional IRA funds to a Roth or by making backdoor Roth IRA contributions. Be aware, however, that you must pay taxes on converted funds, so consider a gradual transition over multiple years to help you stay in a lower tax bracket.

Investor Portfolio

Some market analysts are predicting a “new normal” going forward, which could provide some interesting investment opportunities. Ideas include new operating business models based on a largely remote workforce, population spread as people move out of cities into more affordable rural areas, and innovations borne out of newly created demand. While a buy-and-hold strategy is a common advice for equities, it’s important to stay flexible. As long as you remain within your customized asset allocation strategy, you might want to use your equity portion to explore new ideas that could offer higher return opportunities over the next decade.

Five Ways to Manage Back-to-School Stress

Five Ways to Manage Back-to-School StressIf you’re anxious about sending your children back to school, you’re not alone. In fact, a recent poll from ABC News/Ipsos showed that 45 percent of parents don’t want their kids in the classroom at all. But whether your kids are in school or learning at home, there’s still plenty of worry to go around. How do you cope? Here are a few suggestions from a variety of counselors and mental health professionals that can help.

Express Your Feelings

Noticing the anxiety that’s going on inside is half the battle – then let it out. “I would encourage parents to share this feeling with their partners or other family and friends,” says Michael Consuelos, MD, a senior medical advisor with the mental health management platform NeuroFlow in Philadelphia. Simply releasing what you’re feeling can often take the power of it.

Teach Your Kids How to Navigate

This starts with talking to your kids about what social distancing is, what it looks like, and how to wash their hands thoroughly. Fran Walfish, PsyD, MFT, and a family and relationship psychotherapist in Beverly Hills, Calif., suggests making up real-life situations and getting your kids to “think in advance about what they would say or do to protect themselves while preserving a friendship.” For instance, a friend of your son stands too close to him and asks to borrow a ruler. How should he react? Or your daughter is eating lunch and a friend reaches in and takes a few chips from her Doritos bag. What should she do? You can probably come up with many other scenarios that help your kids figure out the best options for keeping safe.

Have Honest Conversations

Kathleen Rivera, MD, a psychiatrist who specializes in children and adolescents at Nuvance Health in Danbury, Conn., strongly suggests talking with your kids about the situation, no matter how young they are, and asking them how they’re feeling about the changes in their school environment. What things about school do you miss the most? How is this new learning set-up working for you? What are things you don’t miss about school? Claudia Kohner, Ph.D., a licensed psychologist and creator of IntroDUCKtion to Very, Very Big Feelings app, says that if you have very young children, give them some colored pencils and a coloring book. Sit down with them and help them create a homemade book that describes the changes in their school setting and reflects their feelings that go along with it. Encouraging imaginative play with dolls and stuffed animals is also a great way to help your kids express what they’re going through.

Practice Self-Care

In these uncertain times, it’s more important than ever to be kind to yourself – and not judge yourself for failing to cross everything off your to-do list. “You don’t have to do it all,” says Elizabeth Derickson, MSW, LCSW, RPT, a therapist with online therapy provider Talkspace. This is her No. 1 piece of advice for parents who are dealing with back-to-school anxiety. She suggests setting up realistic expectations and acknowledging that there will be both good days and bad days, and allowing yourself “to learn from the bad days, move on and rock those good days.”

Embrace Change

In a few months, the landscape of your life might look radically different than it does today. That’s why being able to adapt to whatever new circumstance presents itself is key. According to Dr. Rivera, “Flexibility is the most important thing in this whole process.” Knowing you have every right to reverse your decisions is OK – and empowering.

Despite the seemingly never-ending stream of worries that inevitably crop up in our new abnormal, remember: the most constant thing in life is change. Things will get better.

Sources

https://www.realsimple.com/health/mind-mood/stress/manage-back-to-school-stress-coronavirus

https://www.ipsos.com/sites/default/files/ct/news/documents/2020-06/topline-abc-coronavirus-wave-12.pdf

R&D Tax Credits May be Part of the Next Tax Relief Bill

R&D Tax Credits, Next Tax Relief BillAs the economic impact of COVID-19 lingers and an impending second wave is on everyone’s mind, Congress is already thinking of new legislation to stimulate the economy. One of the ideas on the top of the list is an expansion of the Research and Development (R&D) tax credit as part of the next COVID-19 relief bill.

Proposals for the R&D Tax Credit

There are numerous proposals for changing the R&D tax credits. It is seen as an investment in the U.S. economy, with some believing the credit is an effective tool to combat offshoring. Some of the main proposals for changes to the R&D tax credit include:

  • Doubling the current credit
  • Giving businesses the ability to immediately use the credit instead of having carryforward credits
  • Expanding the credit for domestic manufacturing
  • Increasing the refundable amount for startups

Will My Business Qualify?

The best candidates for R&D tax credit are companies that operate in the following spaces: manufacturing, architecture, engineering, construction, software, life sciences and medical devices. The key determinate is whether your company makes or improves something; this will give you the best chance to qualify.

Contractors

There is a misconception that if your business is hired or contracted to perform work for other organizations that you cannot qualify for the R&D tax credit. This is not necessarily true; contractors (especially government contractors) can qualify if they have both economic risk and retain substantial rights as contractors.

Startups

The R&D tax credit is refundable in part (against employer payroll tax) for startups. The idea is to expand the refundability so that the credit can be offset against more than just payroll taxes and even perhaps to make it refundable (to some degree) in general. The idea here is that startups won’t be forced to carryforward credits for years and can then reinvest the cashflow to accelerate growth and jobs creation.

Internal Use Software

Internal use software is software that companies develop themselves. It can be stand-alone software or modifications to existing systems through substantial improvements, the development of add-ons or modules – the idea is to expand the space of what qualifies for the credit for internal use software. This would allow companies that traditionally wouldn’t have qualified (such as finance institutions, banks and retail stores) to now potentially be eligible.

Conclusion

This next relief package is likely to be considered prior to the summer congressional recess. Many analysts believe the bill will focus on provisions that help businesses hire back laid-off workers, retain current employees and grow over the long-term. It’s likely the R&D tax credit will play a key role in the latter objective.

R&D Tax Credits May be Part of the Next Tax Relief Bill

R&D Tax Credits, Next Tax Relief BillAs the economic impact of COVID-19 lingers and an impending second wave is on everyone’s mind, Congress is already thinking of new legislation to stimulate the economy. One of the ideas on the top of the list is an expansion of the Research and Development (R&D) tax credit as part of the next COVID-19 relief bill.

Proposals for the R&D Tax Credit

There are numerous proposals for changing the R&D tax credits. It is seen as an investment in the U.S. economy, with some believing the credit is an effective tool to combat offshoring. Some of the main proposals for changes to the R&D tax credit include:

  • Doubling the current credit
  • Giving businesses the ability to immediately use the credit instead of having carryforward credits
  • Expanding the credit for domestic manufacturing
  • Increasing the refundable amount for startups

Will My Business Qualify?

The best candidates for R&D tax credit are companies that operate in the following spaces: manufacturing, architecture, engineering, construction, software, life sciences and medical devices. The key determinate is whether your company makes or improves something; this will give you the best chance to qualify.

Contractors

There is a misconception that if your business is hired or contracted to perform work for other organizations that you cannot qualify for the R&D tax credit. This is not necessarily true; contractors (especially government contractors) can qualify if they have both economic risk and retain substantial rights as contractors.

Startups

The R&D tax credit is refundable in part (against employer payroll tax) for startups. The idea is to expand the refundability so that the credit can be offset against more than just payroll taxes and even perhaps to make it refundable (to some degree) in general. The idea here is that startups won’t be forced to carryforward credits for years and can then reinvest the cashflow to accelerate growth and jobs creation.

Internal Use Software

Internal use software is software that companies develop themselves. It can be stand-alone software or modifications to existing systems through substantial improvements, the development of add-ons or modules – the idea is to expand the space of what qualifies for the credit for internal use software. This would allow companies that traditionally wouldn’t have qualified (such as finance institutions, banks and retail stores) to now potentially be eligible.

Conclusion

This next relief package is likely to be considered prior to the summer congressional recess. Many analysts believe the bill will focus on provisions that help businesses hire back laid-off workers, retain current employees and grow over the long-term. It’s likely the R&D tax credit will play a key role in the latter objective.

R&D Tax Credits May be Part of the Next Tax Relief Bill

R&D Tax Credits, Next Tax Relief BillAs the economic impact of COVID-19 lingers and an impending second wave is on everyone’s mind, Congress is already thinking of new legislation to stimulate the economy. One of the ideas on the top of the list is an expansion of the Research and Development (R&D) tax credit as part of the next COVID-19 relief bill.

Proposals for the R&D Tax Credit

There are numerous proposals for changing the R&D tax credits. It is seen as an investment in the U.S. economy, with some believing the credit is an effective tool to combat offshoring. Some of the main proposals for changes to the R&D tax credit include:

  • Doubling the current credit
  • Giving businesses the ability to immediately use the credit instead of having carryforward credits
  • Expanding the credit for domestic manufacturing
  • Increasing the refundable amount for startups

Will My Business Qualify?

The best candidates for R&D tax credit are companies that operate in the following spaces: manufacturing, architecture, engineering, construction, software, life sciences and medical devices. The key determinate is whether your company makes or improves something; this will give you the best chance to qualify.

Contractors

There is a misconception that if your business is hired or contracted to perform work for other organizations that you cannot qualify for the R&D tax credit. This is not necessarily true; contractors (especially government contractors) can qualify if they have both economic risk and retain substantial rights as contractors.

Startups

The R&D tax credit is refundable in part (against employer payroll tax) for startups. The idea is to expand the refundability so that the credit can be offset against more than just payroll taxes and even perhaps to make it refundable (to some degree) in general. The idea here is that startups won’t be forced to carryforward credits for years and can then reinvest the cashflow to accelerate growth and jobs creation.

Internal Use Software

Internal use software is software that companies develop themselves. It can be stand-alone software or modifications to existing systems through substantial improvements, the development of add-ons or modules – the idea is to expand the space of what qualifies for the credit for internal use software. This would allow companies that traditionally wouldn’t have qualified (such as finance institutions, banks and retail stores) to now potentially be eligible.

Conclusion

This next relief package is likely to be considered prior to the summer congressional recess. Many analysts believe the bill will focus on provisions that help businesses hire back laid-off workers, retain current employees and grow over the long-term. It’s likely the R&D tax credit will play a key role in the latter objective.

How to Develop an Employee Leave Policy During COVID-19

Employee Leave Policy During COVID-19According to the United States Department of Labor’s Wage and Hour Division, the Families First Coronavirus Response Act addresses how select businesses must give their workers paid sick leave or expanded family and medical leave under permitted circumstances in light of COVID-19.

Effective starting April 1, 2020, the following will be in effect through Dec. 31, 2020.

1. If the worker cannot perform his duties because he is relegated to a quarantine, as mandated by a medical professional or a local, state or federal government, or if he is symptomatic with COVID-19 and seeking a diagnosis to confirm it, he is entitled to as many as 80 hours of paid sick leave at his normal rate of compensation.

OR

2. The worker may be due no less than 80 hours of paid sick leave at two-thirds of the worker’s normal compensation if the individual can’t perform her work duties because of a justifiable reason to look after another person required to quarantine – be it because of a doctor’s diagnosis or by a local, state or federal government order. It can also apply to an employee if she needs to care for a minor child (younger than 18 years old), if her school or daycare center is shuttered or otherwise unable to permit the minor child to attend due to the coronavirus.

The Act also includes as many as 10 additional weeks for expanded family and medical leave, paid at two-thirds the worker’s normal wages. This can occur where the worker, who has been an employee of the business for no less than 30 calendar days, cannot work because of a justifiable reason to look after a child due to closure of a school or daycare center.

Employees of both select public employers and private businesses that have fewer than 500 employees may be eligible for the expanded family and medical leave and paid sick leave from the FFCRA. However, this may not apply to select businesses with 50 or fewer workers. For example, small businesses with less than 50 workers may be exempt from the requirement to give leave for school or child care unavailability if fulfilling the leave requirements would put the business’ ability to survive at risk.

When it comes to federal employees, it’s important to note how the FFCRA changed their situation. For federal employees subject to Title II of the Family and Medical Leave Act, they are eligible for the aforementioned provision referring to paid sick leave. However, the COVID-19 amended family and medical leave provisions in the FFCRA are not the same for federal employees.

All workers of covered employers are eligible for two weeks of paid sick time for applicable grounds due to the coronavirus. Workers on the payroll for a minimum of 30 days may have up to 10 weeks of compensated family leave to look after minor dependents, based on the individual situation caused by the coronavirus.  

When Leave May Be Permitted

Workers are qualified to receive paid sick time, according to the FFCRA, if they can’t perform their duties, including remotely, due to any of the following circumstances.

  1. Under a local, state or federal quarantine or isolation mandate due to the coronavirus.
  2. A medical professional has recommended a patient quarantine himself because of COVID-19.
  3. An individual is symptomatic consistent with COVID-19 and seeking a medical opinion.
  4. The worker is caring for another person in either category 1 or 2.
  5. The employee is caring for a child whose school or daycare facility is shuttered or otherwise inaccessible due to the coronavirus.
  6. A worker is facing an almost identical condition detailed by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

Workers, also in the FFCRA, are eligible for expanded family leave if they are looking after a child whose learning center or daycare is shuttered or otherwise inaccessible because of COVID-19.

When it comes to categories 1, 4 or 6, full-time workers are qualified to have 80 hours of leave. Part-time workers are eligible for calculated leave based upon an average of a 14-day time-frame.

For category 5, full-time workers are eligible for as many as 12 weeks of leave. This consists of two weeks of paid sick leave and an additional 10 weeks that are paid expanded family and medical leave – all 12 weeks at 40 hours per week.

When it comes to paid sick time under the FFCRA, it doesn’t carry over to the following year. Also, workers may not be compensated for untaken leave if they retire, leave voluntarily or involuntarily, or otherwise are no longer with their employer.

For the first three categories, workers on leave qualify for compensation at their normal rate or the prevailing minimum wage over a 14-day period, whichever rate is more.

For categories 4 and 6, workers on leave qualify for two-thirds of their normal compensation or the prevailing minimum wage, whichever rate is more (no more than $200 a day or $2,000 per two-week period).

For the fifth category, workers taking leave similarly qualify for two-thirds of their normal compensation or the prevailing minimum wage, whichever rate is more (no more than $200 per day or $2,000 over two weeks).

While each organization must do its due diligence to see how the law applies to its employees, this law gives businesses and workers more flexibility to balance work and family responsibilities.

How Will the Market Price in Q2 Earnings?

Q2 Earnings 2020The New York Fed Staff Nowcast predicts a negative 14.3 percent (-14.3 percent) growth of real GDP for Q2 of 2020 and a positive 13.2 percent growth of real GDP for Q3 of 2020. Clearly, the Fed is expecting a rebound in the second half of 2020.

This forecast, presented in the July 17, 2020: New York Fed Staff Nowcast, attributes better than expected results for industrial production, capacity utilization, and retail sales data categories, resulting in the upward revision.

For June 2020, the forecast for the Industrial Production Index was 2.48, but the actual figure was 5.41. As the Board of Governors of the Federal Reserve System defines it, this index gauges the real output in the U.S. economy’s industrial sector on a month-over-month basis as a percentage change.

For June 2020, its Capacity Utilization measure was 3.54, versus the original forecast of 1.84. Coming from the Board of Governors of the Federal Reserve System, this measures the percentage of resources consumed by businesses to create goods for all domestic production.

Also for June 2020, the U.S. Census Bureau reported a figure of 7.50, compared to the forecast of 2.17, for the month’s retail sales data, on a month-over-month basis as a percentage change. It looks at the sales from more than 12,000 retailers with paid workers, including food.

While there’s no definitive way to determine how each community, state, or region will be affected, the Brookings Institution did an analysis that provided an interesting insight into how and why certain areas may be more impacted economically than others. It looked at sectors more prone to interruption by COVID-19, resulting in less business, more closures and layoffs. It found that areas reliant on energy and in the southern part of the country were more likely to be negatively impacted.

Brookings found that by looking at 2019 employment figures for these industries, there are approximately 24.2 million jobs that are ripe to be disrupted. Looking to Moody’s, Mark Zandi found that the following five industries are most vulnerable: mining/oil and gas, transportation, employment services, travel arrangements, and leisure and hospitality.

Conversely, Brookings found that more mature manufacturing locales, agricultural centers, and already economically challenged areas are less prone to negative impacts. However, it’s noteworthy that because of the proliferation of technology, which has seen an uptick in computer sales and IT/cybersecurity due to increased remote working and learning, the potential for a rebound will be easier.

While the COVID-19 pandemic has the world in its grip, it’s noteworthy to discuss how past pandemics and infectious disease outbreaks have impacted markets. Over the past 40 years of global epidemics, according to FactSet and Charles Schwab, there have been mixed results when it comes to the impact of disease outbreaks on market performance, using the MSCI World Index as a reference.

In June of 1981 during the HIV/AIDS outbreak, the index fell 0.46 percent during the first month; falling 4.64 percent over the three months after the start of the outbreak, and down 3.25 percent six months after the initial outbreak.

As for the 2006 avian flu outbreak, the index dropped 0.18 percent one month after the start; then the index was up 2.77 percent three months after the outbreak; and up 10.05 percent six months after the outbreak. 

Looking at these figures, it shows that more often than not, these types of events are short to medium term pullbacks, presenting investors with buying opportunities.  

According to Zacks & Nasdaq, Q2 earnings’ projections for the S&P 500 is a negative 43.7 percent, with a drop of 11 percent in revenue. While Q2 is expected to be the worse, Q3 and Q4 are expected to experience smaller, but still noticeable drops in earnings due to the coronavirus. The transportation sector is expected to decline by 152.4 percent; autos is expected to decline by 224.2 percent; and energy is projected to drop by 138.4 percent, on a year-over-year basis.

While these were some serious declines for Q2, the one bright spot was technology. The technology sector declined by only 13.2 percent year-over-year, with a drop of 1.2 percent in revenues. However, it’s noteworthy that, much like technology has seen shallow losses along with the medical sector, it’s projected that in 2021 the technology sector will earn 8.8 percent more while the medical sector is expected to grow its earnings by 12.8 percent in 2021.

The coronavirus is unique in that there’s been mass stay-at-home orders and closures. However, based on past disease outbreaks, the economy and markets generally seem to find a way to balance themselves out.