For more on the latest Franklin Templeton-Gallup survey results, read “On My Mind” from Sonal Desai.
Here are a few highlights from the conversation today:
“From my perspective, markets have run far in advance of the real economy….The hope is that the real economy catches up with markets and importantly, with asset prices. So far, what we are seeing is if we continue reopening, of course there are going to be steps back, as we are seeing right now. But as we reopen, we can still avoid permanent damage to the real economy.” – Sonal Desai
“People who are more confident in their ability to protect themselves when they’re out in public from the virus are much more likely to be booking hotel reservations, to be going out to restaurants, to be flying, to be going to the barber shop or the beauty salon…We’ve seen big partisan differences in people’s willingness to go out and engage in these kinds of behaviors, as well as the kinds of precautions they’ve taken.” – Jonathan Rothwell
“One of the fascinating things we found in the fourth [Franklin-Templeton Gallup] survey was….great financial confidence amongst those who had financial advisors. And that is something which is encouraging because clearly people who hand their finances to a financial advisor seem to feel much more confident about their ability to navigate the financial turbulence.” – Sonal Desai
“People’s attitudes have changed over the course of the pandemic. It used to be far more of a partisan gap in mask use and acceptance. And now it’s really shrunk.” – Jonathan Rothwell
“It seems…even with a vaccine, there will be enough people with enough concerns that they’re not going to be rushing out to get the vaccine, even if it’s a university available early on…While there remain concerns, there also is a gradual return to some form of normalcy, which is not completely tied up to a factor such as the vaccine.” – Sonal Desai
Stephen Dover: Hello, I’m Stephen Dover and election day is finally here. Over the next two weeks, we will cover equity, fixed income markets, as well as global macro, hedge funds, real estate, municipal bonds, the impact of the election on Europe and emerging markets, and how taxes might affect investment decisions. It’s my pleasure to kick off today’s conversation with Dr. Sonal Desai, Chief Investment Officer of Franklin’s Fixed Income Group, as well as Dr. Jonathan Roswell, the principal economist at Gallup. They’ve been doing a series of five surveys on COVID and its impact on the consumer. And they’ll be speaking today about Gallup’s consumer findings up to the election and where they think the research may lead them post-election.
Sonal Desai: I know it’s election day, but I think it might be a good time given how much COVID is a driver of what’s going on in our country and indeed around the world right now. This brings us to why Franklin Templeton and Gallup, we launched this particular project, and the reasons come down to two areas we were focused on which impact the economy.
The first is how do policymakers react? When do they impose restrictions? When do they take them off? It has an obvious impact on economic activity and thus on markets. This is something which one can see in a fairly transparent way. Politicians speak, policymakers speak. We know what the subsequent impact is going to be. But the second piece of it was uncertainty, which was much harder to figure out. And it was a speculative issue of will people be so traumatized by COVID that they will not come back to having their normal economic activity take place. That second type of uncertainty in a sense was what we were trying to capture. How are people’s attitudes towards COVID changing? Let me bring Jonathan into the conversation now. Jonathan, do you want to say a few words about some of the findings we’ve had so far?
Jonathan Rothwell: Sure. So I’ll just give a few big-picture highlights of some of the major themes. And then we can talk about some of the details. So one theme is that people who are more confident in their ability to protect themselves when they’re out in public from the virus are much more likely to be booking hotel reservations, to be going out to restaurants, to be flying, to be going to the barber shop or the beauty salon; essentially to be engaging in public consumption. And so, these behaviors are closely tied to how people feel about the virus, and we’ve also seen big partisan differences in people’s willingness to go out and engage in these kinds of behaviors, as well as the kinds of precautions they’ve taken. And, one of the striking findings is really the strong influence of partisan identity across so many aspects of people’s attitudes and behaviors with respect to the pandemic.
And because we took such a large sample size in creating these data—and I should just pause for a second and say, we had 10,000 respondents in our first wave, and then each month we’ve added 5,000 additional responses. So, we’ll have 35,000 by the time we finish our sixth wave. And that gives us the power to merge in data at the county level, state level, on the disease burden, on policies, in terms of what things are open and what the timing was of the shutdowns. And as well as other data such as from Google Mobility on whether people are visiting the office or they’re visiting retail establishments, and with what frequency relative to before the pandemic. The really striking thing there is that where you live has a fairly minor effect on a lot of your attitudes and behaviors. It’s much more driven by national politics, national media, and how you feel like you fit in as a respondent in that bigger picture. And so, we’re finding very little effect in terms of number of deaths per capita in your county as to how confident you are and how much you’re consuming and that sort of thing. And that gets into some really interesting partisan differences in assumptions about the virus.
Sonal Desai: Yeah. And before we get into those partisan differences, Jonathan, let me interrupt to just note one thing. It’s not just confidence in undertaking economic activity. One of the fascinating things we found in the fourth survey was there was an order of magnitude great financial confidence amongst those who had financial advisors. Clearly, people who hand their finances to a financial advisor seem to feel much more confident about their ability to navigate the financial turbulence, which we cannot underestimate that has been caused by COVID. But yes, definitely going back to some of those very interesting findings on the intersection of politics with people’s views of health.
Jonathan Rothwell: Well, so one way we tested this is we looked at what people say the share of deaths from COVID have been, and how that varies by age. So, we asked basically what percentage of people in different age groups account for all deaths from COVID and the correct answers are 80%, 90% of deaths were in the oldest age groups. And yet we found that Democrats were overestimating deaths in the youngest age groups, 24 and younger by 10, 20, 30, 40, sometimes 50 times. And there was a fairly consistent error in perception about the severity of the illness for younger populations. And, likewise we found errors on the other side that Republicans were more likely to make.
We found that they were much more likely to say that the flu and auto accidents are more severe and caused greater numbers of deaths during 2020 than COVID. So, what we’re starting to unravel is that both groups are getting very different messages from their media sources, from the people they trust in their social networks. And as we move forward in the next couple of waves, we’re collecting more detailed information about what those information sources are, and conducting experiments about what happens when you show people the truth about the age distribution of deaths or the trend in deaths per capita, does that make them feel better about reopening schools or not? And so, those are some of the questions we are wrestling with.
Sonal Desai: And actually on that note, before people think it’s all terrible, I do want to note one thing. It does go back to media for a bit, if you were to hear and watch and listen to media and to most of our political leaders right now, you’d think that one of the starkest divides in America today is really basic. Should you, or should you not, wear a mask? And here’s what the incredible thing is: through all these people we’ve surveyed—Democrats, Republicans, independents—there is overwhelming agreement on the issue of masks. You have around 90% of Democrats who feel that you should wear masks. Over 80% of Republicans feel you should wear masks overall. If across all political parties you have between 80% and 90% agreement, even more interesting, mask mandates are supported by Republicans and by Democrats. Those are one set of factors which I think are very interesting. And you would not believe this if you were to simply look at the entire campaign so far on the issue of masks, it’s become such a big deal and isn’t one in the minds of ordinary people. And I think that’s one thing which is really fascinating, and perhaps a little bit disheartening. To see how this, how something which isn’t an issue has been made an issue, right?
Jonathan Rothwell: That’s right. And the very encouraging thing is that people’s attitudes have changed over the course of the pandemic. It used to be far more of a partisan gap in mask use and acceptance. And now it’s really shrunk and it’s very small. It used to be that judges and Republican counties in Texas, for example, were saying that it was unconstitutional to have a mask mandate. They weren’t going to support it. And then all of a sudden, as the virus unfolded and people learn more about masks, and the CDC [US Centers for Disease Control] changed its recommendations, you started to have more governors—even in Republican states—and more mayors, adopt mask mandates. So it’s optimistic in that people can respond to new information and change what seemed to be kind of entrenched political views and attitudes about this. But yet, there are these other areas of the virus where we haven’t seen that happen.
Sonal Desai: And there has been a move in the reopening of elementary schools, in-person teaching. At this stage, it is still true that more Republicans than Democrats would like in-person teaching, but the part which I found actually pretty encouraging is despite more Republicans than Democrats wanting in-person elementary school teaching, if I look across Democrats and Republicans, you have close to 60% of people who at this stage would like to see some in-person teaching. Why I think that’s important is once again, it’s a question of are people beginning to understand better who is most vulnerable to the virus and who is not, and also the counterfactual, which is the damage which is done by lack of socialization for young children.
Despite this incredibly polarized time we’re living in, there is a lot of information which is somehow making its way through to people. And I think to some extent, these are signs to be encouraged by.
But now let’s talk a little bit about the vaccine, where I find this some of the most interesting, and perhaps not so surprising, facts that we’ve come out with so far. And that is vaccine take up. Independently from the poll which Gallup is doing with Franklin Templeton, I know Jonathan that you guys have been doing vaccine polls for quite a long period of time. And I think that this is quite interesting, the information we get here, it’s not just a question of discovering a vaccine, how many people would take the vaccine if it were to be discovered. And that is the area where it starts getting quite interesting.
Jonathan Rothwell: Well, you alluded to some of the longstanding polling that we’ve been doing on this topic. So back in July, we found that 66% of people would say yes to taking a vaccine if an FDA- [US Food and Drug Administration] approved vaccine was available right now at no cost, they would. They said, yes. That gradually dipped and, and between August and September, fell from 61%, all the way to 50%. Meanwhile, you saw a pretty sharp drop among Democrats and a rise among Republicans. What seems to have happened, which is rather astonishing, is that there’ve been a series of articles and a lot of media attention about this idea that the vaccine might be rushed, that Trump might try to get a vaccine before the election, just to help his chances of reelection, even if it hasn’t gone through the appropriate approval process. So, there’s just a lot of concern about that sort of thing.
And then what, in that context, where overall half of people say they won’t take it, we conducted an experiment on the Franklin Templeton-Gallup poll, where we assigned people into one of 24 different groups. And what we did is we varied whether we gave information in the question about whether they would take a vaccine that would include additional information about the FDA approval process, when the vaccine was released, whether it was going to be released this year or early next year. We also varied how effective the reported vaccine was. The FDA minimum is 50%, so we had one question where we said at least 50%, efficacy, meaning that at least 50% of people in the clinical trials see an improvement in their symptoms versus 100%. And we also had a condition about the side effects. And when you threw all this information together, we had some really interesting results—one of which on the partisan side is that Democrats were roughly seven percentage points more likely to accept the vaccine if it came out in early 2020. And I think a big part of that is thinking that if Joe Biden was president, they would have more confidence in the approval process, or if it came out after the election, then it wouldn’t have that suspicion of being rushed in order to help President Trump.
We didn’t see any effect on vaccine timing among Republicans or independents, incidentally. And then we also saw large effects on efficacy, which suggests that a lot of people are worried that it’s going to be a fairly low-quality vaccine. When we said it was 100% effective versus 50% that boosted acceptance of the vaccine by seven percentage points across a variety of different models that we looked at. So, some of those are some of the big highlights.
Sonal Desai: And I would just say on what we found based on the data—and this is on the encouraging side—again, is while Americans have remained very concerned about COVID, in terms of returning to economic activity, when we got the spike in July while the recovery, in terms of increasing the amount of economic activity, it stabilized. It did not nose-dive again. Of course, economic activity nose-dived the first time COVID hit. Then we saw recovery as we had reopenings. Then we got the re-tightening of conditions, but confidence and economic activity did not completely nose-dive. This helps because it means that while there remain concerns, there also is a gradual return to some form of normalcy, which is not completely tied up to a factor such as the vaccine. It seems to me self-evident, that even with a vaccine, there will be enough people with enough concerns that they’re not going to be rushing out to get the vaccine, even if it’s a universally available early on.
Jonathan Rothwell: Well, I agree with all that. And I think it’s encouraging what we’ve seen in the Northeast, for example, where we got hit very hard back in April, especially in New York City, obviously, and had very strict lockdown policies for a brief period of time and, obviously have a higher percentage of Democrats who our survey work shows are very concerned about the virus, relative to the Republicans, less likely to go out and be consuming things. And yet we found that once those restrictions were lifted and those cities moved into phase two and then phase three of reopening, there hasn’t been an increase in the virus. There hasn’t been an increase in hospitalization. And in fact, there’s been a very sustained drop in hospitalizations and deaths and so on and a revival of economic activity, not all the way back to where it was, but you do see restaurants open, you see people going out in public and to me, that’s encouraging about what could happen once a vaccine is combined with those kinds of conditions.
Sonal Desai: In terms of impact on markets, we are trying to really find out the impact of COVID on the real economy. From my perspective, markets have run far in advance of the real economy. And the hope is that the real economy catches up with markets and catches up and importantly with asset prices. So far, what we are seeing is if we continue reopening, of course, there are going to be steps back as we are seeing right now, but as we reopen, we can still avoid permanent damage to the real economy. And that has to be what financial markets need to be focused on over the medium term, and the near term, of course, the fiscal package, the size of the fiscal package, the continued monetary support. These are what are going to keep markets in place in their current treading-water-style place. But I would say looking a little further ahead, the outcome of people’s response to COVID is going to be the most important thing.
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