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Assessing the Risk of Reopening

Some regions and industries may be better positioned than others for a rebound from COVID-19 closures.

Key takeaways

  • About half of U.S. GDP is derived from industries that have lower COVID-19 risk, while only about 10% of GDP comes from industries with the highest COVID-19 risk.
  • Regions that so far have been harder hit by the virus might be better positioned to reopen from an economic perspective with a greater share of information economy industries, which tend to be more able to work from home.
  • The loss of jobs from stay-at-home orders remains a challenge and could result in sluggish economic growth if consumption is unable to rebound.

Not all regions and industries are impacted by COVID-19 equally

In recent weeks, investors have shifted their focus from how deep a recession might be to what the path of the recovery might look like. While no one can know how the economy and the spread of COVID-19 will continue to evolve, the two are intrinsically linked in the near term. Several U.S. states that so far have been less impacted by the virus have begun to ease social distancing rules. Workers returning to their jobs and consumers having a greater ability to spend will help boost GDP, although the outlook for the second quarter remains bleak following the 4.8% decline the first quarter.

Not all industries are impacted by COVID-19 equally, however, with some types of businesses more exposed to risks from the virus due to the nature of the work being performed. One manner in which ClearBridge is evaluating this is by combining detailed industry GDP data with academic research that focuses on three key criteria: 1) an industry’s ability to work remotely, 2) how “essential” the industry is and 3) the chances of coming into contact with a sick person while at work in the industry. Combining these measures allows for a rough picture of which industries face more direct risk as opposed to those where the general recession-related demand risks may be more significant. This can also help inform which industries might be positioned to rebound quicker or prove more resilient in the face of the virus (Exhibit 1).

Exhibit 1: U.S. Top/Bottom 5 Industries by COVID-19 Risk. Source: BLS, BEA, INET Oxford.

Looked at in this way, the breakdown of virus risk is fairly logical. The more resilient industries, such as construction, finance and technology, tend to be more essential ones where workers typically have a high ability to either easily work from home or do their jobs without coming into contact with too many people. On the other side, higher-risk industries typically require in-person contact as a part of the job and are often considered less essential.

Importantly, the least-exposed industries on balance contribute a larger percentage of overall GDP than the most-exposed industries. This suggests that from a structural perspective, the U.S. economy is fairly well-suited to weather this storm. When we look at all types of jobs at the sub-industry level and sort them into quintiles based on risk, we similarly find that a greater share of U.S. GDP is represented in the less-exposed industries than the more-exposed ones (Exhibit 2).

Exhibit 2: Most of GDP Has Lower COVID-19 Exposure (by Quintile). Source: BEA, INET Oxford.

We can also use this framework to examine the U.S. from a geographic perspective to see which portions of the country might be more- or less-able to soldier on, economically speaking, in the face of the virus. On a regional basis, two of the three largest regions by GDP have above-average structural virus risk given the makeup of their economy. However, the good news is these two regions have so far been less impacted by COVID-19. The region hardest hit by the virus is currently the Mideast (which includes New York and New Jersey). However, this region has an economic mix of industries that should make it more resilient to the virus, from an economic perspective, with a greater share of lower-risk industries, particularly in the information economy.

Exhibit 3: COVID-19 Risk Varies by Region. Source: BEA, INET Oxford.

Despite all of this, the portions of the economy less resilient to COVID-19 tend to employ more workers, proportionally. With the labour market more at risk, the larger issue, economically speaking, may be the impact of declining demand as workers lose their jobs and are able to spend less as savings begin to dwindle. Importantly, much of the downside in first-quarter GDP was driven by declining consumption, suggesting many were already tightening the purse-strings before the virus even fully hit. This makes government programs such as the Payroll Protection Program for small businesses and the household stimulus checks from the CARES Act of paramount importance. As a result, we believe continuing to monitor both the government response and high-frequency barometers of the labour market, such as weekly jobless claims and job postings for new hires, will remain important in the coming weeks.


The Bureau of Economic Analysis (BEA) is an agency within the Department of Commerce's Economic and Statistics Administration, responsible for collecting and publishing economic data, research and analysis, and estimation methodologies.

The “CARES Act” is short for the ''Coronavirus Aid, Relief, and Economic Security Act''.

COVID-19 is the World Health Organization's official designation of the current novel coronavirus disease.

Gross Domestic Product ("GDP") is an economic statistic that measures the market value of all final goods and services produced within a country in a given period of time.

The Institute for New Economic Thinking at the Oxford Martin School (INET Oxford) is a multidisciplinary research institute dedicated to applying leading-edge thinking from the social and physical sciences to global economic challenges.

The Paycheck Protection Program is a loan program that originated from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This is a nearly $350 billion program intended to provide American small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans.

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About the Author

Josh Jamner, CFA, Investment Strategy Analyst, ClearBridge Investments (a Legg Mason affiliate)

Josh is an Investment Strategy Analyst and conducts research to help frame the firm’s macro and market outlook for internal and external constituents. Josh joined ClearBridge Investments in 2017 and has 11 years of investment industry experience. Prior to joining ClearBridge, Josh was an Assistant Vice President, Associate Strategist covering U.S. Equity at RBC Capital Markets and an Assistant Vice President, Client Portfolio Analyst at Bessemer Trust. He received a BA in Government from Colby College. He is a member of the CFA Institute.

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