Jamaica Economic Intelligence | Q3 2020 | July–September 2020
Key Findings
- US GDP rebounds at a record +33.4 percent annualized rate in Q3 — the largest single-quarter expansion ever recorded, partially unwinding Q2’s historic -31.4 percent collapse
- The $600-per-week federal unemployment supplement expires July 31; Congress deadlocks on a second major relief package through the entire quarter
- The S&P 500 hits new all-time highs in late August, erasing all pandemic losses; the Nasdaq crosses 12,000 for the first time as technology stocks drive a market that has fully decoupled from economic reality
- Andrew Holness wins a landslide reelection on September 3 — the Jamaica Labour Party takes 49 of 63 parliamentary seats, the second-largest majority in post-independence history, delivering political stability at the moment the island needs it most
- Jamaica announces October 1 as its tourism reopening date, backed by the COVID Resilience Corridor protocol — a testing-and-monitoring framework built from scratch over six months of zero arrivals
- Oxford/AstraZeneca, Pfizer/BioNTech and Moderna all advance to Phase III clinical trials in Q3; results are expected before year-end, and the vaccine race that will define 2021 is now visibly on the home straight
It is September 3, 2020, and Andrew Holness has just won the largest parliamentary majority in Jamaica’s modern political history. The hotels have been dark for six months. The airport, which received two and a half million visitors in 2019, has been processing a trickle of returning residents and essential travellers. The country’s GDP has fallen by a margin that would, in any ordinary year, constitute a national crisis. And yet the electorate has returned the incumbent government with 49 of 63 seats — a verdict so definitive that it reads less like a choice between parties than a statement about what Jamaicans believe they are building, and who they want to be building it with, when the guests finally come back.
The American Recovery: Numbers Without People
The headline number for Q3 2020 in the United States is almost hallucinogenic in its scale: GDP growth of 33.4 percent annualized — the largest quarterly expansion ever recorded in the history of the Bureau of Economic Analysis’s national accounts series. The context is essential. Q3’s record expansion was the mechanical bounce from Q2’s record contraction of 31.4 percent. An economy that falls off a cliff and climbs back up the same cliff has returned to its starting point, not advanced beyond it. The United States in September 2020 remained smaller than the United States of December 2019 by a meaningful margin. The record was a rebound, not a recovery.
The labour market told a more nuanced story. US unemployment, which had peaked at 14.7 percent in April and fallen to 11.1 percent by June, continued its descent through Q3: 10.2 percent in July, 8.4 percent in August, 7.9 percent in September. The trajectory was encouraging. The level was not. Pre-pandemic unemployment had been 3.5 percent — a fifty-year low. The September reading represented nearly four and a half million more unemployed Americans than had existed before COVID-19. And the pace of improvement was decelerating: the largest monthly drop — 2.2 points, from April to May — had come earliest. Each subsequent month’s gain was smaller, as the easiest rehiring was done and the remaining unemployment became concentrated in sectors — hospitality, travel, food service — whose recovery was tied to public health conditions rather than economic stimulus.
The fiscal backdrop to the Q3 labour market was a political confrontation that produced nothing. The CARES Act’s $600-per-week enhanced unemployment supplement — the provision that had kept consumer spending surprisingly resilient through the economic collapse of Q2 — expired on July 31. Congress could not agree on a successor package. Senate Republicans proposed a $1 trillion bill; House Democrats held firm on the $3.4 trillion HEROES Act they had passed in May. Neither side would move to the other’s position. Trump signed four executive orders in early August that attempted to extend some benefits through presidential authority — a constitutionally dubious manoeuvre that produced partial, delayed disbursements rather than the comprehensive relief the expired supplement had provided. For the tens of millions of Americans who had been receiving enhanced benefits, Q3 brought a sudden and sharp income cliff whose effects on consumer spending were beginning to show in the August and September retail data.
Markets at New Highs: The Decoupling Completes
If the labour market was telling a story of incomplete recovery, the financial markets were telling a story of something else entirely. The S&P 500 crossed its February 19 all-time high on August 18 — erasing every loss from the fastest bear market in recorded history in exactly six months — and continued higher. The Nasdaq Composite crossed 12,000 for the first time on September 2. The technology companies that had driven the index’s advance — Apple, Amazon, Microsoft, Alphabet, Facebook — were not merely surviving the pandemic; they were the primary beneficiaries of it. Remote work was a Microsoft product. Online shopping was Amazon. Video calls were running on Google’s infrastructure. The shift of economic activity from physical to digital that the pandemic had forced was a revenue event for the companies that owned the digital infrastructure.
The Federal Reserve’s role in the market’s extraordinary performance was structural rather than incidental. At its August Jackson Hole meeting, Chair Powell announced a significant evolution in the Fed’s policy framework: average inflation targeting, which would allow inflation to run above the 2 percent target for periods following years of below-target readings before the Fed would respond with tightening. In practice, the announcement was a commitment to keep rates at zero for the foreseeable future — a signal to markets that the emergency accommodation of March 2020 would not be withdrawn at the first sign of recovery. Risk assets, which are valued against the risk-free rate, benefited directly: when the risk-free rate is zero and committed to remain there, the present value of future earnings rises mechanically. The market’s relationship to the broader economy in 2020 was not a puzzle. It was a function of central bank policy and the composition of what the major indices actually measured.
For Jamaica, the US market’s recovery to new highs had the same practical significance it always carried: American investors’ confidence, their retirement account balances and their sense of household wealth were all recovering at a pace that their unemployment rate did not reflect. A household that had kept its job and watched its 401(k) return to pre-pandemic levels was a household that might, cautiously, begin thinking about a winter holiday. The question was whether thinking would become booking before October 1.
The Election: A Mandate for the Next Chapter
Jamaica’s general election of September 3, 2020 was called earlier than required — the constitutional deadline was February 2021 — and in the middle of a pandemic that had halted the economy. The decision to go to the polls at a moment of national crisis rather than wait for calmer conditions was a strategic calculation by Prime Minister Holness that the government’s pandemic management had been competent enough, and the opposition’s alternative unclear enough, that an early election would produce a stronger mandate than one fought on the terrain of a recovering economy where the opposition could claim credit for external improvement. The result vindicated the calculation beyond what the polls had suggested.
The Jamaica Labour Party won 49 of 63 parliamentary constituencies — a majority of 35 seats in a 63-seat chamber, the second-largest majority in post-independence history. The People’s National Party, which had won power in 2011 and governed through the IMF programme’s most austere years, was reduced to 14 seats. The result was, on one reading, a verdict on five years of economic transformation: the employment records, the tourism records, the fiscal surpluses, the reduced debt burden, the sovereign credit upgrades. On another reading, it was a verdict on the pandemic response: the border closure, the emergency measures, the CARE programme, the fiscal cushion that had allowed the government to spend while peers were cutting. The electorate did not distinguish between the two interpretations. It returned the government that had delivered both.
For the economic trajectory, the political significance of a 49-seat majority was practical rather than symbolic. A government with a majority that large could advance legislation — including the continued institutional reforms and investment framework improvements that the reform period’s second phase required — without the negotiation and concession that a narrow majority demands. The Bank of Jamaica’s formal inflation-targeting framework, which the BOJ Amendment Act had enabled, would be implemented by a government with the political capital to defend it. The credibility of the institutional architecture that the reform period had built was, after September 3, backed by the most decisive electoral mandate in a generation.
October 1: The Corridor
Jamaica had announced October 1 as its reopening target in June 2020, before most Caribbean competitors had named a date, before the summer’s second wave of US infections had peaked, and before anyone knew with certainty whether the protocols that would make safe tourism possible could be built on the timeline required. The COVID Resilience Corridor was the answer the island built across the summer months: a framework requiring pre-departure COVID-19 testing for all international visitors, on-arrival temperature screening and rapid testing where indicated, designated accommodation zones where certified properties operated under enhanced health protocols, a contact-tracing architecture for the tourism sector, and a monitoring system capable of identifying and isolating cases before they seeded community transmission.
The Corridor was, in its ambition, a bet that safety and hospitality were not mutually exclusive — that Jamaica could receive visitors and protect its population simultaneously, and that the economic cost of remaining closed indefinitely exceeded the health risk of reopening carefully. The bet was grounded in the island’s Q2 data: an economy that had contracted by approximately 18 percent in a single quarter could not sustain further closure without structural damage to the businesses, workforce and institutional capacity that the reform period had built. The hotels that were dark in July needed to open before their staff dispersed permanently to other sectors. The suppliers and service workers whose livelihoods were tied to tourism’s supply chain needed cash flow before their businesses became unrecoverable. October 1 was not an aspiration. It was a deadline the economy had set.
By quarter-end, the Jamaica Tourist Board and the Ministry of Tourism were reporting that advance bookings for October were modest but real. The first cohort of visitors to arrive under Resilience Corridor protocols would be travellers who had followed Jamaica’s reopening announcement closely, who were confident enough in the protocols to go first, and who would provide the test data that the system’s monitoring architecture needed. They would not fill the hotels. But they would start the clock.
The Vaccine Race: Visible on the Home Straight
By Q3 2020, the global vaccine development effort had narrowed to a small number of leading candidates whose Phase III trial results would determine the pandemic’s medium-term trajectory. Oxford University’s collaboration with AstraZeneca, which had been among the first to enter human trials in April, advanced to Phase III in July with a protocol covering 30,000 participants across multiple countries. Pfizer and BioNTech’s mRNA candidate entered Phase III in July with a 44,000-participant trial. Moderna, whose mRNA candidate had produced encouraging Phase I and II results, entered Phase III in July with a 30,000-participant trial. The J&J single-dose candidate began Phase III in late September.
The scale and speed of the trials were unprecedented. Conventional vaccine development measured in decades was being compressed into months by emergency funding, regulatory prioritisation and a global scientific collaboration that had no historical parallel. The Oxford/AstraZeneca trial was briefly paused in September after a participant in the UK arm developed a serious neurological illness — a standard precautionary pause that was resolved when the independent safety committee determined the event was unlikely to be vaccine-related. The pause lasted eleven days. The market reaction to both the pause and its resolution was instructive about how closely financial markets were tracking the vaccine timeline: the S&P 500 fell the day the pause was announced and recovered the day the trial resumed. The end of the pandemic, and therefore the return of the pre-pandemic economy, was being priced through the vaccine calendar.
For Jamaica, the vaccine timeline was not a Q3 reality but a Q4 expectation. What the Phase III data would show — and whether the efficacy results would be strong enough to generate the rapid global uptake that tourism recovery required — would be known in the final quarter of 2020. The island was reopening on October 1 without vaccines. It was betting that its protocols could bridge the gap between reopening and the protection that mass vaccination would eventually provide.
What This Means
Homeowners end Q3 2020 with the island’s property market in a state of suspended animation rather than collapse. The reform period’s institutional work — the NHT’s mortgage book, the improved credit conditions, the fiscal stability that had resisted the temptation to raid housing development funds for pandemic spending — had kept the residential market from the kind of distressed-sale dynamic that a sharper institutional failure would have produced. The October 1 reopening is the first piece of the recovery’s foundation. A functioning tourism sector is what fills the employment base that sustains residential demand. The question for homeowners is not whether the market will recover. It is whether it will recover before the carrying costs of pandemic-period stagnation become structural.
Renters have lived through the most difficult six months in the Jamaican labour market since the 1990s crisis. The tourism employment that had been the primary engine of formal-sector job creation for six years went to zero in March and has not returned. CARE programme payments provided a bridge, but the bridge has a span. The October reopening is not a sudden restoration of full employment — the early visitor numbers will be small, and the rehiring will be gradual. But it is the beginning of the sequence. For workers in Montego Bay, Negril, Ocho Rios and the parishes whose economies are built around hospitality, the October date is the most important number the government has announced since the crisis began.
Developers processing Q3 2020 are reading two data points simultaneously: the Holness landslide, which provides the political stability and legislative capacity that a serious property development pipeline requires; and the October reopening, which is the first signal that the demand environment the pre-pandemic development thesis was built on is not permanently destroyed but deferred. The affordable residential gap that existed in 2019 — the mismatch between buyer pool expansion and supply — has not been closed by the pandemic. The buyer pool has contracted temporarily. The supply gap remains. When employment recovers, the development opportunity that was being articulated before March will reassert itself.
Businesses across Jamaica enter October 2020 with two pieces of genuine positive news in a quarter that provided little else: the election has produced a mandate that removes political uncertainty from the planning horizon, and the border is reopening under protocols that took six months to build. The businesses most directly affected — hotels, restaurants, tour operators, ground transportation, craft markets — are looking at Q4 as the first quarter of recovery rather than the fifth quarter of crisis. The recovery will be partial. The visitor numbers will be a fraction of 2019’s. But a partial recovery in Q4, compounded with the vaccine data that is expected before year-end, establishes the trajectory for 2021 that makes 2022 credible.
Diaspora Jamaicans watching Q3 from the United States have experienced the quarter’s strange duality directly: a stock market at all-time highs while unemployment runs at 8 percent; a GDP rebound of historic proportions that leaves the economy smaller than it was before; a political debate in Washington that produced nothing, even as the enhanced unemployment supplement that had sustained remittances expired. Those whose employment held through the pandemic — and a substantial portion of the Jamaican diaspora in the US is employed in healthcare, essential retail and logistics, sectors that were not shut down — have continued to remit at rates that have surprised every pre-pandemic forecast. That support has been one of the genuine stabilisers of the Jamaican economy’s worst year. The September 3 election result will have been received with satisfaction by the majority of the diaspora: a decisive mandate, in the middle of a crisis, for the government that built the infrastructure the island is now relying on to survive it.
Outlook
Q4 2020 will be defined by two questions whose answers will not be fully known until its final weeks. The first is how many visitors actually come through the Resilience Corridor in October, November and December — and whether the protocols hold, whether community transmission remains controlled, and whether the modest early bookings build into something that can sustain a hotel’s operating costs. The second is whether the Phase III vaccine trials produce efficacy data compelling enough to change the global mobility calculus before the year ends. Pfizer’s trial results are expected in November. Moderna’s are expected around the same time. If either — or both — shows efficacy above 90 percent, the market for 2021 winter bookings will change immediately.
The annual review, due in January 2021, will assess a year whose damage was real and whose resilience was remarkable. Jamaica entered 2020 with six consecutive tourism records and the lowest unemployment rate in its modern history. It exits 2020 with zero tourism for nine months, unemployment at crisis levels and GDP down by a margin that will take years to fully recover. What the annual review will also have to account for is what did not happen: the currency crisis that did not come, the sovereign default that did not come, the institutional collapse that did not come, the political instability that did not come. The reform period was built for exactly this kind of test. Q4 will begin to show whether it passed.
Jamaica Economic Intelligence is an independent data-driven journalism series tracking Jamaica’s economic performance across the housing, tourism, fiscal and monetary sectors. Historical data drawn from Bank of Jamaica, Statistical Institute of Jamaica, International Monetary Fund and Jamaica Tourist Board publications. This report covers Q3 2020: July–September 2020.
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