Assessing The Risks of Reopening

Assessing The Risks 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 occurs in 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 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
Chart of 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)
Bar Graph: COVID-19 Exposure

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
Bar Graph: COVID-19 Risk 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 labor 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 labor 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 which 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.


Important Information


All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

This material is approved for distribution in those countries and to those recipients listed below. Note: this material may not be available in all regions listed.

All investors and eligible counterparties in Europe, the UK, Switzerland:

In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.

All Qualified Investors in Switzerland:
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH. Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.

All investors in the UK:
In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People's Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC's commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC's commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (109) Jin Guan Tou Gu Xin Zi Di 016; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC.

All Investors in Australia and New Zealand:

This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827).  The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

The aforementioned Legg Mason entities are wholly owned subsidiaries of Franklin Resources, Inc.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.