How to put the American economy back together after coronavirus
A stylist wearing a protective mask cuts a customer’s hair at a barbershop in Atlanta, Georgia, on Monday, April 27, 2020.
Dustin Chambers | Bloomberg via Getty Images
When the coronavirus crisis, or at least the worst of it, passes, the U.S. economy will still be big — the biggest in the world, with any threat to be overtaken likely put at bay for many years.
But in other ways, things will feel smaller, much smaller in fact.
Growth rates will be lower. Big crowds will be few. Profit margins will be tighter.
Life will continue in many regards, but nothing will be the same, not for a long time. Much of what will become routine daily life will go against instinct. Society will reach for ways to continue churning forward. But that will come with a mind not to repeat the trauma wrought by seven weeks of social distancing that has separated this connected world in ways that few ever thought possible.
“There will be lower densities of people everywhere,” said Nick Colas, a Wall Street veteran and co-founder of DataTrek Research. “That affects restaurants and bars and sports and everything.”
The size of the world and the magnitude of the task will be important as policymakers try to piece together a broken economy. Layoffs have soared as thriving businesses have been shuttered indefinitely. Manufacturing is in a steep recession, retail and restaurants could take years to get back to normal, and governments will be hamstrung in trying to provide basic services.
As the world indeed is apt to feel smaller, it will require big ideas to get the U.S. moving again.
‘We’re social animals’
While formulating investment strategies and market analysis, Colas spends a lot of time studying sociological trends — how behavioral patterns impact what we do with our money and how we view our lives. One day he might be writing about thought exercises using game theory, the next examining, as he did in a recent daily note, how long specifically it takes people to develop new habits — 66 days, it seems, a number useful when considering the current lockdown.
Looking at the present social distancing situation, Colas figures on some key trends developing.
He expects a faster return to domestic travel than might be apparent. Restaurants and retail will grapple with a host of challenges, like how to arrange seating and what happens in clothing stores when customers want to try on something. Sports will continue, but with fans mostly watching from home.
All of it will come against a backdrop that will force people to keep a safe space from each other, something profoundly counterintuitive to a culture ingrained with hugs, handshakes and kisses.
“It’s very hard, because it goes against the most fundamental human need of social contact. We’re social animals,” Colas said. “This current phase already has been hard on people, particularly in areas like New York where a lot of single people live alone. They’re going to want to have contact. That’s human nature, that’s the human spirit. It’s going to be hard to tamp that down without mental health disruptions.”
Regions of the country are taking the first steps, albeit gingerly, back to normalization.
New York is reopening parts of the state, while Mississippi also has loosened restrictions. Idaho is transitioning into the first phase of relaxing its stay-at-home order. Arizona and Nevada have extended their directives to May 15 but relaxed some rules. You can now play golf in New Jersey and Pennsylvania, but most of the Keystone State remains closed. Some resorts around the country are taking reservations for June.
Reopened areas will serve as fishbowls for others looking to relax restrictions. More than that, they will provide a window into how quickly the $21.5 trillion U.S. economy can get back on its feet.
Gross domestic product contracted 4.8% in the first quarter of 2020, the worst decline since the Great Recession, and more than 30 million people have filed unemployment claims, making the progress toward normalization all the more important — and urgent.
“The issue’s going to be, can you get people feeling like the new normal feels like the old normal?” Colas said. “It should end up feeling a whole lot better, because some of your normal life is back. You can at least hang out with your friends in the backyard while maintaining social distance. But at least people are coming over again.”
How that translates into economic activity, though, remains uncertain.
The shape of the future
Economists have been pondering the shape of the recovery: Will it be a U? V? W? Check mark? Square root? Nike swoosh?
No one seems to know, though the immediate expectations are that after the first-quarter slip the second quarter will post a number worse than anything the U.S. has seen before. In fact, the GDP number may be so bad — something on the order of a 20% collapse or even worse — and the unemployment rate peak — anything from 15% to 30% seems perfectly likely — as to become meaningless.
What will matter more is the path forward.
Most economists expect a considerable rebound after the second quarter. Fed Chairman Jerome Powell said he sees “a fairly large increase given the size of the fall,” thought “it’s unlikely it would be bring us quickly back to pre-crisis level. “
That’s all theory, though. As a practical matter, the country just has to get moving again.
“The point estimate of GDP right now is not really that valuable,” said Marin Gjaja, a partner with Boston Consulting Group, which is helping businesses come up with strategies for reopening and how to conduct business in an altered landscape.
“The variation by sector is enormous,” he added. “You’ve already seen what this has done to airlines, cruise ships, amusement parks, concert venues, amusement parks, any place where there are large amounts of people involved. They’re trying to figure out how they can come back, what they can do to change their business in order to survive.”
Gjaja also sees a landscape dominated by smaller social gatherings.
At a business level, that means shopping and eating closer to home. That benefits small retailers and locally focused restaurants but still leaves into question community-based businesses like barber shops and movie theaters.
“We’ve never seen a recession impact that looked like this with this degree of volatility in terms of impact by sector and geography,” Gjaja said. “The degree of variability is really unique. We’re going to have to figure out a way to navigate through that.”
Boston Consulting released a report called “COVID-19: Win the Fight, Win the Future” that outlines what businesses need to do.
Gjaja stressed that different locales will have different needs. New York won’t be the same as Montana which won’t be the same as Michigan. Certain general rules, though, will apply.
Among the contingencies businesses need to take into account before opening are safety for employees and customers, preparation for additional shutdowns, and health monitoring for workers once they do return, he said.
For the travel industry, such questions are paramount.
The World Travel and Tourism Council, which represents the industry perhaps most impacted by the coronavirus lockdown, is advocating for a global set of rules to follow in airports, hotels and on planes.
“These must provide the reassurance travelers and authorities need, using new technology, to offer hassle-free, pre-vaccine ‘new normal’ travel in the short term,” said Gloria Guevara, the council’s president and CEO.
Guevara sees the liftoff in travel starting with something approaching “staycations” with trips near home, but then being led by younger people who can take advantage of lower fares to move about the country.
According to the WTTC, some of the changes travelers are likely to see at hotels will include digital check-ins, hand sanitizers in plentiful supply and contactless payments rather than cash. Cruise line workers will wear gloves and the ships themselves will be cleaned more frequently. At airports, flyers will be tested when boarding and exiting, and likely will have to wear masks while on board.
Companies that fail to follow safety guidelines may have to pay a steep price just in terms of business lost.
A survey from Vital Vio, a New York-based biotech company, found that 51% of people won’t do business with companies that don’t show a commitment to being sanitary, while 76% said they will “hold brands accountable” that don’t invest in cleaning up their spaces.
Respondents also said they are willing to pay more for cleaner and safer travel as well as activities like dining out and going to the gym.
All of the measures will combine to tell what kind of a recovery the U.S. has after what could well be the worst downturn in its history.
Who will be first?
Analyzing companies on how safe they are to reopen based on potential to spread the disease, Goldman Sachs said the first sectors will be manufacturing, professional services and agriculture. The riskiest industries, and thus the last ones likely to come back online, are health care, education, retail, arts and entertainment and the accommodation and food service industries.
The firm’s economists compared the U.S. open to what’s happening in Sweden, where social distancing practices were widely used through the country did not shut down at a level comparable to the U.S., and China, because it is well ahead of the U.S. on the recovery timeline.
“We believe that the level of economic activity in the US will get better rather than worse over the remainder of the year for several reasons,” Goldman’s economists wrote. “Partial relaxation of shutdown orders will allow some businesses to reopen, people will learn to adapt in ways that minimize the economic costs of social distancing, wider antibody testing should allow those who are hopefully immune to resume normal activity, and improvements in treatment should reduce fear and raise willingness to be around others. In addition, fiscal stimulus should largely short-circuit the usual second-round effects of income losses.”
They found, however, that China’s pace is “too optimistic” for the U.S. while Sweden offers some hope though the country is still using fairly strict social distancing measures. In China, commerce has largely come back, but traffic studies show that consumers are driving to work during the week but not going out on the weekends, indicating that a significant level of fear remains.
How well the U.S. comes back ultimately will come down to a lot of factors, but feeling safe is likely to be paramount.
“It’s not just what the numbers say. A lot is going to come down to how it feels, how much of people’s normal lives they can reclaim,” DataTrek’s Colas said. “As we restore some normalcy, it will feel a lot better.”