Modeling the Second Wave of COVID-19

10min Read

A Multi-Industry Outlook on Coping with a Second Wave of COVID-19

As the United States moves into the summer months and the collective zeitgeist of the American populace shifts from pandemic precautions to sunny vacations, medical experts are less certain about the “end” of COVID-19. While people relish the chance to go back to restaurants and hair salons, the pandemic still looms over us with the threat of a second wave.

The return to a semblance of normal life has breathed new life into the economy, with businesses and consumers eager to return to normal as soon as possible. For this reason, many economists and business insiders are unable or unwilling to imagine another round of pandemic restrictions and a nationwide lockdown.  The profound effects and current trajectory of the pandemic are uncertain but there are clear signs the U.S. economy is headed for the harshest downturn since the financial crisis of the Great Depression.

An Overworked and Under Prepared Healthcare Industry

It goes without saying that a global pandemic has had a major effect on the healthcare system and hospitals across the United States. The disease itself has spotlighted a variety of different shortfalls and inequities regarding U.S. medical care and the potential of a second wave does not bode well for healthcare workers and the industry at large. Small town hospitals are seeing next to no increase in hospital visits while major cities like New York and Los Angeles lack enough beds to house and care for their patients. Lynn Barr, CEO of Caravan Health states, “In many rural communities, hospital and clinic visits have plummeted, which has led to pay cuts and layoffs for healthcare providers.” (Austin Price 2020) A future spike in cases due to a second wave could have devastating results with rural areas having too little staff to take care of the influx of patients while inner-city hospitals lack the capacity to treat a rapid growth in COVID-19 cases.

A second wave of COVID-19 will have a profound effect on the healthcare industry, from the lack of space needed to house all of the new cases to a shortage of nurses and doctors with the capabilities and know how to handle a pandemic level disease. Without a proper scenario-based outlook, it will be incredibly difficult for healthcare workers and executives alike to have any certainty about what to expect from a second wave in 2020 to 2021.

Online Schooling and What It Means for Education

With the majority of the United States being in quarantine during the end of the 2019 school year, many schools and universities transitioned to online classes and course work. While this was an effective stop-gap, many found the actual content of the classes to be lackluster and parents now had to deal with having their children at home at all hours of the day. School’s shifting to online course work, while in and of itself not directly impactful to the financial situation in the United States, does have an effect on those who are now forced to work from home. Parents who would be spending time on contributing to their respective organizations have found themselves having to balance taking care of their children with finding time for their job. Beyond the impacts to the new class of “work from homers”, many universities are replacing traditional exams with online assessment tools. Research has shown that employers use educational credentials such as degree classifications and grade point averages to sort applicants (Piopiunik et al. 2020). The shift to online school could see a disruption in matching new graduates to degree-relevant occupations, with additional potential problems facing the new workforce like slower earning growth and higher job separation rates.

The education industry will likely be one of the hardest hit if there is a substantial second wave of COVID-19. If another lockdown is put into place, teachers and students alike will not be able to go back to school, meaning online learning infrastructure will have to be further relied upon. Coupled with parents now having to feed and take care of their children all day, it is critical to build out a financial model that contains a scenario-based outlook that highlights the multi-variable expenses of what a closed education industry will look like for the end of 2020 into 2021.

International Economic Outlook

Much like the United States, Italy is separated into different regions, with each region taking a different approach to handling the virus. Two neighboring regions, Lombardy and Veneto, both took a different tack to COVID-19 management. Lombardy opted for a more conservative approach of incrementally establishing restrictions to contain the disease while Veneto tested extensively with detailed contact tracing for each and every case of COVID-19 that was documented. Veneto also focused on home testing to lower the burden on individual hospitals and healthcare infrastructure. These differences in the handling of the disease can be seen in the number of cases and deaths each region experienced, with Lombardy having 35,000 coronavirus cases and 5,000 deaths in a population of 10 million while Veneto only had 7,000 cases and 287 deaths in a population of 5 million (Pisano. G, et al. 2020).

Italy has since reopened both its borders and its economy with a successful flattening of the curve for the disease. There is also little sign of a second wave in the country, with experts citing changes in handwashing etiquette as well as an overall acceptance of mask-wearing to be the defining reasons a spike hasn’t occurred. While the country itself is predicted to have its GDP fall by 8.3% (The Italian National Institute of Statistics, 2020), it can at least begin to regain a sense of normalcy that will help the national economy recover. The United States could learn much from how Italy, especially on a regional/state level, handled the virus and what steps can be taken to get America to safely open businesses and educational institutions.

How to Plan for the Future and Model Inevitable Economic Fluctuations

One way many businesses, education systems, and governments are looking to the future is through the use of financial modeling software to garner a better idea of what the economy will look like after COVID-19 has passed. One such outline, as forecasted by Michael Osterholm at the University of Minnesota (Moore, A. et. all 2020), shows that there COVID-19 cases will only marginally crest and fall over coming months with overall little change in the day to day number of cases and deaths over the coming month.

This model indicates that full lockdown precautions will not be needed and that wearing a mask and maintaining social distancing should be enough to keep businesses and schools open. He goes on with another possible model (Moore, A. et. all 2020), that indicates COVID-19 will follow a similar trend as did the Spanish Flu of 1918, with an even bigger spike in cases in the fall of the same year as the result of the “second wave” of the disease. The Second Wave of the Spanish Flu was even deadlier than the first, with over 2/3rds of the 625,0000 deaths occurring between the months of October and November of 1918.

(HYACINTH EMPINADO/STAT; SOURCE: MICHAEL OSTERHOLM/UNIVERSITY OF MINNESOTA) – Moore, K., Lipsitch, M., Barry, J., Osterholm, M. “COVID-19: The CIDRAP Viewpoint” Center for Infections Disease Research and Policy, University of Minnesota April 30th, 2020

This would be disastrous for the United States as this scenario will almost certainly overwhelm the capacity of hospitals and see a reemergence of pandemic restrictions such as lockdowns and business freezes. Given current trends in the U.S. as well as our recent spike in cases, it is likely that we are at a crucial threshold, with a mild second wave on one side and a deadly second wave on the other. If strict social distancing and mask acceptance are not adhered too, the United States of America could be looking at the deadliest second wave of a disease since the Spanish Flu.

When modeling the future, it is important to take both scenarios into account. While it is still unclear which scenario is the most likely to occur, it is still crucial to build and analyze a financial model that utilizes powerful scenario analysis tools and techniques.