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'If you can't get children back in the schools, you really can't restart the economy,' says Scott Gottlieb

The answer to how quickly the U.S. economy can recover may lie in whether schools reopen as normal in the fall. Here's why investors are tracking these developments.

Twenty/20

The question of whether schools will be back to session in-person is increasingly important to both parents and the economy, especially as the number of coronavirus cases in regions across the country is growing.

For many students, the first day of class is rapidly approaching: In 2019, about 75% of students in grades 1 through 12 started school by the end of August, according to a study by Pew Research Center of 509 school districts. Colleges and universities are starting to roll out their plans for bringing students back to campuses. On Monday, both Harvard University and Princeton University announced plans to limit the number of students who will return to campus and said they will offer all (Harvard) or most (Princeton) classes online rather than in-person. 

Many K-12 school districts are still in planning mode, though. As of June, 94% of school superintendents nationwide said their district had not yet announced when schools will reopen and resume in-person instruction, according to a survey conducted by the American Association of School Administrators.

This year, there's more at stake that makes reopening tricky. Administrators must weigh the potential health risks for students and educators versus the benefits of in-class instruction.

Whether schools open or not has broad implications for the economy and its recovery. "If you can't get children back in the schools, you really can't restart the economy in a robust fashion," Scott Gottlieb, the former chief of the Food and Drug Administration, said in a June 30 interview on CNBC's "Squawk Box."

If he were still working in government, Gottlieb said, his priority would be to open schools: "I would do what it takes from a policy standpoint to get the infection rate down enough to open the schools because that really is a gating factor to restarting the economy."

The economic recovery is 'predicated on' schools reopening

It's not just parents who are awaiting news of the plans for back-to-school. Wall Street will also watch these developments as the economy attempts to recover from the coronavirus pandemic.

Experts on Wall Street are for July and beyond are primarily awaiting news of "a legitimate return" for schools, with in-person instruction, Jamie Cox, managing director at Harris Financial Group, previously told Grow. "That's a really big part of whether or not the economy can recover, and it's predicated on something as simple as that."

U.S. economic growth fell 5% in the first quarter, and economists currently project a 32% decline in gross domestic product (GDP) for the second quarter. 

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During normal times, working from home makes employees better at some tasks (like creative work), and worse at others (mundane assignments), studies have shown. However, having to handle child-care responsibilities and at-home teaching is a new twist for many working parents during the coronavirus pandemic.

Most Americans aren't in the position to hire a nanny, so they end up making sacrifices such as not working, "and that has a definite impact on the economy," says Tom Martin, senior portfolio manager at Globalt Investments. "People talk about housing as a jump start for other parts of the economy; school is kind of like that."

The prospect of schools not returning full time in the fall means parents will face challenges once again in trying to juggle their own workload while becoming at-home teachers without sufficient access to child care. And it affects both those parents who have been forced to work from home now as a result of stay-at-home measures and those who go to another location for their job.

Beyond providing education and skills, schools serve as a safe place for children to be during the week while their parents are working. And many other child-care options, such as day cares, may be unavailable in the fall. Even if they are open, experts warn that they could become more expensive as a result of the pandemic.

Having schools back in session "liberates people to go back to work and to be more productive," Cox adds. "None of the commerce can happen in earnest if there's not a facility for children to go back to school."

Schools and stocks

Most schools across the country finished this past academic year with distance learning, rather than in-person classes. The prospect that such a dynamic will continue into the fall is something that will become more of a focus in the weeks ahead.

The New York City Department of Education recently surveyed parents, and 53% of those who responded said their preference is to have children return to in-person class on certain days of the week. A similar share of respondents — 52% — anticipate needing child care during the week for their children who are in grades 3K through 2. 

If you can't get children back in the schools, you really can't restart the economy in a robust fashion.
Scott Gottlieb
former chief of the Food and Drug Administration

Other school districts around the country have also conducted similar surveys to inform their reopening efforts. New York City Mayor Bill de Blasio said last week that he's committed to reopening the schools in September, but New York Governor Andrew Cuomo said no decision has been made yet.

Some districts around the country, especially in states where school begins earlier like Arizona or Georgia, have announced plans to delay reopening. Gottlieb said last week that he expects more such delays, and that those decisions will be made sometime in July. Meanwhile, Florida has announced that it will require schools to reopen in August at least five days per week for all students. 

Back-to-school spending is also one of the biggest periods of retail spending during the year. In 2019, total spending on back-to-school supplies was estimated to be $80.7 billion, according to the National Retail Federation. And the average per family for K-12 schools was expected to reach a record of $696.70, while families with college students were expected to spend an average of $976.78, both of which were higher than in 2018.

"It's a big deal, especially for retailers," Martin notes. If kids aren't headed back to the classroom, their parents may not need to spend so much money on back-to-school supplies — and that has a broader economic impact, he adds.

That said, it's too soon to know whether schools will be delayed or canceled, and what the potential trickle-down effect could be. In addition, investors on Wall Street are trying to make sense of a "so many different variables" right now to forecast the pace of economic growth ahead, Martin says.

The issue of school will become more in focus as September approaches, Martin says. For now, there are many other things on investors' minds, like the upcoming earnings season and how consumers behave.

"What the economy really needs right now is revenue," he says. "People going out and doing stuff and buying things." 

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