Too many people who should know better are taking a big bounce in retail sales as a sign that an economic recovery is well underway. It is, but only in the sense that going from the ICU to a hospital bed could also be defined as a recovery. In keeping, the Atlanta Fed’s GDPNow forecast for the second quarter has improved from negative 52.8% to a sunny negative 45.5%.
Needless to say, a rebound from the lockdowns was inevitable. All sorts of activities like dentist appointments on hold (and dentistry personnel accounted for 10% of the job gains), and so there’s pent up demand for medical procedures and treatments, as well as more mundane services that many regard as critical, like haircuts.
Nevertheless, stock indices rising to new highs looks remarkably out of touch in light of the baked-in and certain-to-continue-for-long-enough-to-matter damage. The true believers are in “Central banks are on the case and will save us” mode. Perhaps they need to heed the warning, “Past results are no guarantee of future performance.”
Multiple factors are working together to bias observers to underestimate the severity of Covid-19 economic damage.
The first is that it has hit parts of the economy that are relatively removed from media coverage: low income service workers and small business owners. Tell me how often CNN goes to interview the owner of a dry cleaner or auto lube shop, even though small businesses have long been the generator of new jobs. Similarly, notice how reports of Covid-19 infections at food processing facilities isn’t covered until the capacity taken out rises to a level where it might impact consumers. In keeping, Bloomberg had a story today, More Food Shortages Loom With Outbreaks at 60 U.S Plants, of outbreaks at non-meat processing facilities, like fruit and vegetable packers and bakeries.
Second is that in the middle income to better off sections of the country, things still look reassuringly normal. The lockdowns froze activity…including business closures. I now live in a twee suburb, and in the local shopping districts, there are not yet any vacant storefronts, even though some businesses in not so prominent locations (a liquor store, the restaurant with the best pizza in the area, and an Olive Garden branch, for starters) have folded; a lot of better restaurants have not reopened even though the lockdown ended a couple of weeks ago.
On top of that, houses in tony suburban and exurban areas are in keen demand. So on top of feeling good about their stock portfolios, upper middle class homeowners in those areas are positively chuffed about reports of brisk property sales at strong prices.
Third is that due to optimism bias and/or having experienced the 1987 crash, the dotcom bust, and 9/11, many people are predisposed to believe that even if the pain of spring 2020 is acute, that the economy will rebound and nearly all of the damage will be erased by year end or say at worst, mid 2021. Underscoring that it a widespread tendency to see Mr. Market at the economy.
This is far from a comprehensive list, but below are eight reasons why the deep damage to the economy won’t be reversed any time soon.
1. Business travel is not coming back any time soon. People are getting accustomed to Zoom. And word may also get out that domestic flying is much worse than it used to be, which will be a deterrent to those who might be so bold as to want to get on a plane. That is a fundamental blow to airlines, airport vendors, hotels, restaurants, and convention centers. Hotel occupancy in April was 24.5% which if anything seems high based on my personal datapoints. The pricings I see say that hotel operators are not expecting much if any improvement through the summer. And as we discussed, hotels are at risk of creating a vicious cycle: they’ve cut service levels drastically as a way to reduce the bleeding of the low occupancy rates. But even at knocked-down prices, the degraded experience is enough to make travelers think twice about getting on the road.
2. White collar workers will not be going back to offices in the old numbers. Elevators and public transport, particularly commuter trains, are perceived as big risks. And a lot of cities can’t cope well with people driving in. NYC is extreme here but it’s now short of parking space even with midtown looking freakily underpopulated. Moreover, many large corporations, having had to figure out how to make work from home manageable, have decided they can cope with it or even like it, so they plan to cut their office space when lease renewals come up. That development will thin out tons of businesses near office buildings
Estimates vary, but in New York City, both retail and office space payments are way down. 40% seems a reasonable guesstimate based on the panic level.
3. On the residential side, both the CARES Act as well as measures implemented locally provided for forbearance. But as Lee Sheppard explained in Tax Notes, this is imprecise legally. Landlords and lenders are expected to give tenants and homeowners a payment holiday, but what happens then isn’t at all clear:
CARES Act sections 4022 and 4023 give borrowers of federally backed mortgages the right to request forbearance for 90 to 180 days, depending on the number of units in the building, with no fees or extra interest charged. Foreclosure is prohibited during that period.
Banks that kept loans on their books are being urged to be lenient and restructure them. Section 4013 of the CARES Act tells regulated lenders that they won’t have to take charge-offs or nonaccrual classifications for what would otherwise be impaired loans or troubled debt restructurings.
The CARES Act requires forbearance only for mortgages. But it also permits bank forbearance and changes for other loans, with indulgence from regulators. So there will be a fair amount of action on loans.
What is forbearance? It is a lender’s temporary willingness not to collect interest or principal payments on a loan. It is by definition discretionary and not an exercise of the terms of the loan document. Indeed, it is a deliberate failure to exercise creditor default remedies.
So we’ll see evictions and foreclosures. I have no idea what the level will be and banks may decide in some areas not to foreclose (cheaper to have the resident secure the house) but the municipality loses property tax income.
4. Colleges will have a lot of trouble this fall. First, they are losing nearly all their full-freight-paying Chinese students, between concern over US Covid-19 risks, Administration hostility, and travel restrictions. That alone is a big blow.
On top of that, some are planning to reopen but MIT’s announcement yesterday, that it will not allow all students to return to campus, probably represents a new normal. Well-placed MIT alumni read the university’s decision as driven significantly by a desire to protect faculty and staff; I hear from sources with contacts at other universities that administrators that they see no way to put kids in dorms without running unacceptably high Covid risks. Remember, even though kids almost never die of Covid-19, but there is a risk of serious damage. 1/2 the asymptomatic cases on the Diamond Princess now show abnormal lungs. And remember those cruises have half the people on board as crew, and the crew skews young. College is a lot less appealing if you don’t stay in a dorm.
Just as diminished activity in central business districts has negative knock-on effects to nearby business, so to do hollowed-out colleges and universities have for their communities, as described in more depth in a recent Bloomberg story.
5. PPP loans are keeping workers on the books through late June-mid July, depending on when the loan came in. Many employers, ranging from museums to small manufacturers are saying they have to make deep headcount cuts then. Continuing unemployment claims already show that new hires are still being pretty much equaled by job losses.
6. Cutting across all the categories of businesses suffering from Covid-19 damage….restaurants, shops in office districts, merchants in college towns, small manufacturers….is that many are small businesses. Small business owners have to guarantee loans personally unless they are able to finance their operations by borrowing against real estate. Even SBA loans require a personal guarantee. So when consumers cheerily say that restaurant owners or other operators will just declare Chapter 7 or 11 and then start their venture afresh, they miss that these capitalists will be wiped out. They won’t have the money to start over again. And they may not have the pain tolerance either.
7. State and local governments are already hemorrhaging jobs and it will get worse. And in some, perhaps many communities, the budget cuts will be so deep that they will degrade service levels. Less frequent garbage collection and street repair is not good for business either.
8. The EU is not going to do enough stimulus to offset its own Covid-19 damage and Brexit is coming, a shock to the EU and UK when both are already on the ropes. Roughly 25% of S&P earnings come from Europe. The odds Italian banks will blow is rising all the time and that could be a CreditAnstalt-level event.
I’m sure readers can come up with additional items, but this list alone ought to be enough to curb the enthusiasm of the economy cheerleaders. As Marshall Auerback said by e-mail:
American household spending in the 1960s was powered by rising wages and growing home equity. But wages have been largely stagnant since at least 2000, and spending increases since 2010 were powered by rising personal and corporate debts. House values are now stagnant at best, and will likely fall in the months ahead. Faced with radical uncertainty, US consumers will save more and spend less. Even if the government replaces their lost incomes for a time, people know that stimulus is short term. What they do not know is when the next job offer – or layoff – will come along.
Moreover, people do distinguish between needs and wants. Americans need to eat, but they mostly don’t need to eat out. They don’t need to travel. Restaurant owners and airlines therefore have two problems: they can’t cover costs while their capacity is limited for public-health reasons, and demand would be down even if the coronavirus disappeared. This explains why many businesses are not reopening even though they legally can. Others are reopening, but fear they cannot hold out for long. And the many millions of workers in America’s vast services sector are realizing that their jobs are simply not essential.
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… as well as more mundane services that many regard as critical, like haircuts.
the grayer, fatter, uglier Fabio II is going to see about getting a haircut today. I now have the mother of all mullets…
I find it interesting how cutting hair somehow became one of those things that requires state approval. Another area where gate keepers establish themselves and push laws through requiring state licensure. Once some state board decides if you can make money or not, you’re just a slave. Barbers are not applying leeches anymore. And how many are still shaving men?
Universities have been very adept at squeezing themselves into occupations to make them a required third party. So nursing was once an occupation that a lot of people could do but in many countries now, if you want to be a nurse you have to be university qualified. In previous times an apprenticeship was the main requirement with state given examinations at the end of it. I think that this could be true of doctors as well. But no in ore and more occupations, unless you have the university qualifications, you can’t do the job.
Let me just say that having college trained, licensed RN’s are important. They are the one’s who actually make a hospital function. The skills needed to be a qualified RN are well beyond apprenticeship.
I’ve spent some critical time in a hospital and the ability of attending RN’s (both ICU and general unit) to understand the broader implications of a doctor’s directive and the comprehension of computational details involved with medicine application is beyond me. It’s too much work for my mind; and I’m one of those licensed professionals mandated by the state.
And this ignores the “soft skills” needed to provide care to patients. (If you’ve ever been tended by a male nurse, you’ll know what I’m saying.)
Erm, I have been tended by a male nurse and I don’t know what you mean.
What I have observed (as a patient and friend-of-patient) is that community college trained nurses, who, in my part of the world, start working on wards in the first week, are better nurses than the university-trained ones who don’t see a patient until year two. Many would have washed out early on if they had actually contact with patients right away. You can generally spot them, they clutch their clipboards as if they were shields and flee to positions in admin ASAP.
Both 4-year and 2-year community colleges produce RN’s. Both have clinical (hospital) requirements. Of course, 4-year colleges produce RN’s with greater academic depth. Doesn’t mean they are better nurses. But they are the ones roaming the ICU’s because they have the greater depth of knowledge.
My main point was a simple one: modern day nursing skills cannot be gained through apprenticeship. It requires sustained study, instruction, and clinical experience.
So, what does this have to do with male nurses?
At least in France, hairdressers have to have a diploma because they handle chemicals used in hair colouring which are potentially dangerous and can cause burns. They also have to be familiar with employment law and social security legislation and payments, which in France are very complex. And of course the fact that they are all qualified and inspected means that you can rely on an acceptable minimum standard of service wherever you go.
Chemicals used in permanent waving/curling ditto, heat from hair dryers, even washing hair can be dangerous. Was a case in Canada a while back of an elderly woman who had some neck vertabra damaged during the was part of a wash-and-set. Not to mention Sweeney Todd.
A friend in Seattle cuts and styles hair for men and women, and he’s very good at it. He is in NO hurry to go back to work indoors in close proximity to a dozen or so strangers a day with 30 minutes’ exposure to each one.
Yes, the mullet. I am becoming the victim of hair logic. I keep looking at my old, decrepit, wooden Northland Pro in the closet. My hand reaches for it…I know it’s crazy, but I can’t help myself. I ask myself, “Should I get my skates sharpened?” Dumb as a rock, but I can’t shake it. I’m wondering when the first skim of ice will form on the ponds…what the heck is the matter with me! I look in the mirror and I know it’s the mullet. I gotta get to the barber or I’ll start dreaming about Bobby Orr.
Hair logic in the extreme…
fresno dan is mullet free!
So I get my hair cut at “Supercuts” which I guess is some chain of haircut…shops.
You could always check in on the internet, but I guess now you have to do that and there is no option for just walking in. The barber and customer both have to wear masks. One removes the ear loop and just holds the mask in place while the barber cuts around the ear.
I asked the barber about business. They actually were allowed to open 3 weeks ago, which I did not know – it is hard keeping up with the pronouncements. She said that the first week was much, much busier than normal, next week pretty dead, and now it has evened out, but at a lower level of business than pre-covid.
You can also do the buzz cut at home.
I have a barbers trimmer for my beard. With COVID I finally got to use the other attachments: No 2 up the sides, No 5 over the top. 15 minutes later, all nice and neat!
Mullets …
Senor dan .. Is your coiffeur situated in the San Joaquin version of the BarterTownSquare ‘shopping district’ ?? .. Auntie’s Barbarby, perchance?
‘One raggity-man enter – One sheared grow’d-warrior leave”
‘;]
Dan, two solutions:
https://www.flowbee.com/
and…
How to braid your hair
…solutions, not problems.
Adam, have you used the Flowbee?
All models of Flowbee are out of stock.
The epidemic was almost certainly the knockout punch for many businesses that were already barely surviving before the shock.and governments will seemingly fail to recognize that strong keynesian intervention is mandated and has to be maintained for long if they don’t want depression to keep its course while the usual hawks are already asking for termination of state aid programs. We had first epidemic negationism and now we face economic negationism as if the value of stocks would by itself fix everything back to normal. Harder times ahead unfortunately.
Well said, Ignacio. I would add that this may be a knockout punch for globalization as we know it. John Ralston Saul suggested this already happened two decades ago (it takes awhile for ideologies to die in the minds of the elite, right?). I don’t know how we are going to functionally transition to “positive nationalism” (ie. citizen based economics) but you presented a key ingredient, IMHO, when you wrote: “strong keynesian intervention is mandated and has to be maintained for long if they don’t want depression to keep its course”
There is only one reason to remove or not implement Federal support for the population at large and SMEs: The “hawks” want (for them or for their clients) to buy properties and stuff on the cheap.
My decision to brew multiple batches of polecat’s finest honey melomel might be a winner .. when the need to barter becomes ever greater! For want of ‘refreshment’ ..
And unlike most beers, it gets better with age. Then there’s honey, which will be .. should Hawaii declare it’s independence from thee not-so-great whitey-haus fathers, become a hot commodity, sugar becoming ‘sweetener non-grata’ for most, as in the days of old .. except the very richy rich, of course .. then tis to my advantage as well.
See, I can small-clandestine-business dream too .
Another mead maker in the house! I’m two weeks into my first batch.
Here’s my go-to YouTube channel for learning more about meads and how to brew:
https://www.youtube.com/channel/UCA-SZX2Xzl0p7pJy2fHeN-Q
Just some random observations from this side of the pond:
1. In my local area in Dublin, to my surprise a number of hotel/aparthotel developments that were frozen at the crisis are now back under construction. Either they expect things to get back to normal, or they are hoping that they can rent them out to government for quarantine or similar.
2. In Ireland, all hotels and guesthouses have been shut and are only allowed open to the end of the month. But thanks to people not being able to travel, pretty much all of them are booked solid for the next 2-3 months and are advertising at extortionate prices. My sister, a big fan of foodie guesthouses (and finding every discount possible), has said she can’t find anywhere nice over the summer season to book that isn’t charging at max peak prices for the entire season.
3. A friend of mine who owns holiday cottages in the north of England reports similarly – he is booked out solid for the rest of the year. His customer base is almost all domestic. Another friend who owns a small cafe/event venue in an English city similarly says that he is solidly booked for the rest of the year, although he is having trouble working out if he’ll be allowed to have group events like weddings or shows. But he does say that a lot of people are quibbling over deposits, which indicates that a lot of bookings aren’t particularly solid.
So I think the impact on the hospitality sector will be very lobsided. If you have a small hotel in a nice area within driving distance of a big city, you’ll be fine. But big hotels dependent on business travellers or city breaks will be pretty much wiped out. Probably the only thing that might save them is compulsory quarantine. A friend currently in a hotel in Shanghai says that she is having difficulty moving and prices are very high – presumably because so many people are self quarantining while visiting relatives (as she is doing) or similar.
Education – another issue with all types of education is that lots of students, especially foreign students, depend very heavily on casual hospitality work. One of the big attractions of Ireland and the UK for Asian/South American students is the plentiful supply of casual work. Many thousands of Chinese and Korean and Brazilian students in Dublin essentially work their way through their courses – Dublins reputation as a place with plenty of relatively well paid casual work is a big draw for students from modest backgrounds. So a downturn in hospitality industry employment will have a pro-cyclical impact on the education sector, and not just foreign students.
Yves has previously mentioned the likely hood of a W shaped recovery. I think this was very perceptive – I think we’ll see quite a good summer in many sectors due to a rebound effect as people get back to work and spending. But it will be in Q3 that the underlying damage will become apparent. It might even be more complex than that – Michael Pettis in Beijing has a good twitter account where he looks carefully at local behaviour in his neighbourhood. He thinks that the recent outbreak is very bad news for China because it has hit consumer confidence at precisely the moment when it looked like things were getting back to normal. We can expect similar hits for the rest of the year as even ‘clear’ places like South Korea or New Zealand find themselves fighting fresh outbreaks.
I would not call it a W, since the profile I anticipate doesn’t match a letter.
The rebound will only partly retrace the losses and might even later be called a dead cat bounce. I don’t see the appearance of strength lasting long. Those PPP loan firings will start in late June. Many firms got loans later, so you’ll see that downdraft continue into July. And the strong stock market will work against much more stimulus (not that it was well directed….).
Another factor is that some, perhaps many, companies are completing contracts that won’t be renewed at all or not at the former level.
From there, it will start to go sideways, then down.
How about a capital “L,” in cursive?
Well, maybe a ‘W’ that looks like the Wicklow200 cycling event symbol….
If we look through the southern Indian (Dravidian) alphabets with all their curves and loops, I bet we can find something.
That would be nice to do, though tough when one is not doing many biking km weekly.
If the virus turns out to be endemic to some countries, then what we might see is a dead cat bounce in those countries.
Some countries = all countries, once tourism is allowed. If you don’t allow tourism, then you lose your tourism sector. New Zealand is the envy of the world for virus containment, but one can’t imagine those jet boat tours are going to be very busy until the rest of the world gets their troubles sorted.
Yves, the “forgiveness terms” on the PPP loans have been amended from the initial up to 75% of $100,000 spent on salaries within eight weeks of PPP loan distribution to a 24 week period. I believe this change will allow smaller businesses to survive for a longer period.
I think these changes will help employees of only a limited subset of businesses, those businesses that hadn’t previously applied but which will now apply because of the changed terms. The new terms don’t increase the amount of the loan, they just change how much of it will be forgiven. My company received a PPP loan under the original terms, the changes make the amount forgiven somewhat greater, but the cash won’t last any longer. The real beneficiaries of the changes will be owners (including myself), who now will have to repay less of the loan.
No, this is the reverse. It’s not a matter of distribution, it’s a matter of how long the business can afford to keep the staff.
Even assuming the PPP paid enough for full salary recovery (for some businesses, it doesn’t; a friend with a manufacturing business got only $420K versus her $700K payroll because some of her employees are high skill and make over $100K), extending the time helps only for businesses that were entirely closed, like restaurants. It did NOT increase the amount distributed. That was set based on 8 weeks of payroll as 75% of the total distributed.
So if after paying full payroll for eight weeks (now eight weeks from when you started supporting salaries) and your business clearly can’t support the payroll, you will cut staff.
Moreover, the amendment on the fly was of limited help. A lot of business like restaurants (per a WSJ story yesterday( didn’t apply because the 8 week requirement was in affect when the program had funds to distribute.
A zigzag economy. Or even better, stairsteppin down to lower states of ‘commerce’, much of it ‘informal’, out of the prying noses of taxman everywhere .. that too, uh, works in my admittedly cloudy seer’s eye.
… at least until StrongMan 2.0 takes hold …
At what part of the letter (?) do the food riots start?
If ever there was a time for a job guarantee program…
If ever there was a time that the establishment would fight a job guarantee program it is now.
When they say they need to be able to “compete” it’s all about bringing wages down. Nothing does that more than mass unemployment. Every industry is going to squeeze wages to make up for lost demand that you nor your children should hold your breath about returning. Sports and entertainment – big squeeze. Keep a close eye on the battles with the unions.
I see people desperately mincing about like there will be a return to “like it was in 2019.”
Wandering around in their deluded dreamworld as if all of this was like a season of the tv series Dallas back in the eighties – an entire season written off as another characters dream.
The coming college semester is a big question mark. The influx of students is entangled with real estate, shopping and the biggest in my town, restaurants and bars. Not to mention the college sports season which supported so many AirBnB’s here.
They are starting the year early here (UNC Chapel Hill) and ending it early as well, on Thanksgiving! And up to 1000 new students will be learning from home instead of coming to campus.
Big question mark — MIT’s president Reif yesterday noted that “At least for the fall, we can only bring some of our undergraduates back to campus.” and “Everything that can be taught effectively online will be taught online.”
Courses are comparatively easy, but labs, research, and sports look doubtful if/when case counts start marching up again.
In my little town of Sebastopol at least half the restaurants will go out of business, the one used bookstore is shuttered and quite a few of the tourist dependent shops will be going out of business.
Vacation rentals are being allowed again, it’s too early to tell if they will be OK yet.
July 4th will be a good indicator.
Real Estate prices are looking wobbly.
I did get my first haircut since January and now sport bright blue mohawk.
I think most of the long-term job losses will be low income jobs (less than $40k/year). This is the group that recent statistics showed is at spending levels similar to last year, but much of that is supported by federal stimulus money ($600/wk unemployment, $1,200 check, PPP). When that dries up, that spending will likely decline. Many of those low income jobs will not have come back for two years as they are in hospitality and entertainment types of sectors. The drive-thru fast-food and takeout restaurants are doing fine – everything else is suffering and many will go permanently out of business. It is going to be a bloodbath in downtown areas in major cities.
The economy will lose a significant amount of consumer spending when the below median income have significantly lower income because they spend that income. That will reduce corporate revenues and sales tax collection.
White collar workers working from home will do fine. They will also continue saving money instead of spending it since they won’t be travelling for pleasure or business or going out for food or entertainment. Recent statistics indicate that in early June, the top 25% income category reduced their credit card spending by 17% compared to pre-coronavirus while the lower income people reduced their spending 4%. This is the same reason that the Republican tax cuts don’t work to boost the economy – they give the money to people who don’t spend it, so it doesn’t create economic growth, although it does create asset bubbles.
Reduced state and local tax revenues means the layoffs are already starting in the public sector. There are so many public sector layoff requirements that saving a dollar in salary is only saving $0.30 in the first year after laying off the employee. So the layoffs are likely to be deep. A cost effective approach is that state and local governments will simply not hire to fill positions of recent retirees because then they get 100% savings, so younger folks hoping for government work are going to be disappointed for at least a couple of years. State and local governments reduciton in spending was a significant damper on the fianncial crisis recovery and will be one here as well.
I think we are staring at 10% unemployment for at least 2 years. Real unemployment may be significantly higher as discouraged workers don’t get counted. Also, with so many baby boomers entering Social Security eligibility, they may be forced to retire early and take reduced social security payments for the rest of their lives. That will be a drag on the economy for the next 30 years as social security benefits recirculate in the same month they get paid.
I don’t think you are appreciating the magnitude of months on end of low wage workers salaries being doubled, combined with a huge drop in federal tax revenue. Also, congress is certainly not stupid enough to allow the additional unemployment benefits to expire going into an election (afterwards, certainly). Combined with a 3 trillion dollar spending bill, we have an unprecedented increase in aggregate demand from the average american. Now that the economy starts to open up a bit, there is actually something to spend the money on other than amazon purchases.
Consumption is our economy, and if you don’t think we are going to continue seeing huuuge retail sales numbers > earnings > GDP then you are way off base IMO. We are effectively already instituting a generous UBI. Yes, many small businesses have and will tragically fail and we are in a complete mess in many ways, but sectoral balance always wins out. The private sector hasn’t had a surplus like this since… I don’t even know when? WWII maybe? This certainly blows away the response we had in 2008.
All this spells term #2 for the donald in my outlook. The dems threw everything they possibly could at him and it failed miserably. And it serves them right, run a real candidate with real policy positions instead of incessantly whining about the guy who is in there now. Not sure how long it is going to take for the left to wake up…
9. Low income people, with the most propensity to spend,
can’t if they don’t have income for a long time.
Here’s a horrifying thread with video and pics of an 8 hour wait
to apply for UI in Kentucky. And there are people who applied
in March and April who still haven’t been serviced.
As an extra bonus, (nonperformative) mask usage in the line looks like it’s about 50%,
so some of these poor souls will soon have other things to worry about.
Mitch’s solution for his hard-pressed constituents: More judges.
Well, it’s a good thing then that mr. Stone above ain’t living in the Ken tuck ee, home of the Big A$$ Smoke-ster, mohawk or no ..
One of the biggest ironies of all is that the health care industry is suffering because the expense of treating coronavirus is not offset by enough income but it is still crowding out other services. I doubt any big hospitals will go under, but the small rural ones have been dropping like flies for a few years now. I had my yearly yesterday and my new doc is voicing her frustration with the way information is so mishandled, not to mention that the tests for antibodies are virtually useless, and she thinks it will take at least a year to get some kind of yearly shot for corona. We might never see an actual vaccination. She mentioned that people are putting off going in for imaging procedures and lab work because they are afraid the clinics and hospital labs are dangerous places.
> What is forbearance? It is a lender’s temporary willingness not to collect interest or principal payments on a loan.
My son’s lender gave him 3 months “forbearance”. At the end of the three months they billed him for a triple mortgage payment.
Fortunately he was able to remain employed and had banked the 3 payments. I expect he is one of the only people to do so.
Such “forbearance“ sounds like a vicious scam.
It is not at all a well known concept. It just lets you pay late with no penalty. It does not relieve you of your obligation.
Having said that (and I need to turn in so I am not about to find the link) I am told a NY Post article said that tenants in NYC were pretty much paying as usual, so they seemed to appreciate that this forbearance business was not much of a break.
Just wait till federal tax time become ‘un’-deferred. How many, especially the precarious within the middleclasses, not be able to pay what’s owed? .. or .. incensed at the transparently unfair government/fed reserve plays, just throw up their proverbial hands, and say ‘Screw this!!! Wall Street made Bank thankyouverymuch! .. why am I not held to the Same standard??’ …
Tax headcounts may possibly roll …. away!
Yeah, forbearance and deferment are not a reprieve, they just raise the hammer higher.
Debt on top of debt. Is there anything more American than that?
Excellent work and great forecasting, Yves. Thank you for everything that you all do all of the time.
Hear! Hear! (Read! Read! ?, Note! Note! ?)
A minor point: I’ve read that if absolutely everyone wore a mask we could resume many of our activities. Maybe. But personally, I find them semi-suffocating, even the fairly loose-fitting cloth variety. I believe in their worth but the nauseating experience of light oxygen deprivation causes me to avoid most outings or activities that require them. I can’t imagine how medical professionals wear these things so often. Maybe it takes some getting used to.
Is anyone else similarly annoyed? Again, I believe in the value of mask wearing; I just find it nearly unbearable.
I find the most objectionable thing to be glasses fogging, with suffocation a close second. I imagine one can eventually get used to it, since, e.g., surgeons wear them for hours at a stretch every day of their working lives.
One of the difficult things about the current situation is the remarkable shortage of PPE and the difficulty the manufacturing sector seems to have both meeting the existing demand and coming up with improved products at scale. Since PPE is safety-critical (failures will cause injury or death), and since almost all manufacturing seems to have been outsourced to China where quality is suspect at best, it’s hard to be optimistic about the situation improving. In fact, as new protocols evolve around the world in which PPE is the new normal, shortages and counterfeit products seem likely to get worse.
Obviously this is one area where a wartime level of federally driven domestic production efforts would make total sense, but this would require acknowledging that coronavirus is real, and with Donald “nothing to see here” Trump in the White House this seems unlikely to happen any time soon.
I don’t even notice mine, to the point where I sometimes try to spoon food thru it
I dunno, maybe it’s because I used to have a beard? In combination with the fact that I was an avid bicyclist so just walking around, let alone sitting in front of a computer, just doesn’t require much air?
I don’t care for them, but since I am working at home and don’t go anywhere — my lovely and talented wife also does shopping — I only needed a mask once for an unavoidable shopping trip. She had a birthday. We got a very nice pear torte from the local chocolaterie!
I do work, play games with the kids, and eat well. I putter about in the wood shop. (Hand tools are the secret for avoiding masks there.) I’m really quite a bit happier than before the outbreak. We seem to be able to hide out from the virus on our homestead in the Santa Cruz Mountains redwoods. With that, the clean air, decreased car noise and no commute, I’m wondering why we didn’t do this before!
I’m sure it will all come crashing down when school starts again, but for the moment, life is grand.
Speaking anecdotally, veterinarians and veterinary facilities appear to be doing okay. Some have tele-medicine services for established patients only. In California, and seemingly almost nation-wide, veterinary facilities have implemented a “curbside” aka “concierge” pet drop-off protocol. No humans except veterinarians and staff are permitted inside the facilities. Everyone is masked. Masked pet owners wait for their appointment in their cars with the animal in numbered parking spots. A staff member in PPE approaches the vehicle, maintains safe distance, and the pet is handed off. Owner waits in vehicle and communicates with staff and vet via text. Animal is then returned to the owner in the same manner. Non-scientifically speaking, nation-wide, business seems good. The downside of all of this is that vet visits are more traumatic for pets. And euthanasia, including in-home with a traveling euthanasia vet, is brutal.
I took one of my dogs for a routine exam this week in Iowa and elected to use the curbside service. As our state has relaxed restrictions, owners were allowed in, but the office is tiny, and there was no limit on the number of owners entering, so I stayed outside. I was shocked that the staff member who took and returned my dog was not wearing a mask. I looked at the office website and then Facebook page when I got home, wondering whether she might have been violating office protocol. There were FB photos taken throughout the pandemic, probably to reassure owners who could not enter the building, of veterinarians and office staff with no masks (nor masks anywhere in sight that could have been pulled off for a photo) caring for and posing with the pets. Risk from staff to each other, and lesser, but still possible, risk to pets. I would say about two thirds of the owners did wear masks. As you noted, the practice was busy. That could change if enough owners lose income and can no longer afford the visits.
Is it possible for a pet to get a shot outside?
While I agree with this, I wonder if it’s missing the other side. For example, when more people work from home, they still need to eat and don’t necessarily have time to cook. Will suburban and neighborhood restaurants and delivery services see an uptick? Obviously, this doesn’t help the city center businesses, but maybe it evens out a bit when spread across the entire economy. That is, a lot of current businesses are in a bad way, but maybe the economy will restructure around the “new normal”.
Takeout is way less profitable than sitdown. Restaurants here closed after briefly trying takeout because they could not make it work (three in a less than ten minute driving distance). The only ones I anticipate that will do OK are venues with tiny sit down spaces, where they were set up as mainly takeout.
Sporting events (not that I follow any) have economic impact and there will not be any residual demand when they are permitted. And surely some people will be reluctant to enter arenas with thosands of screaming fans. Locally, Syracuse has SU football and basketball (drawing 20-40,000), a triple A baseball team and a minor league hockey team. I don’t know how many game nights there are locally, but I’d guess 100+. There is a certain amount of out of town people attending same.
Same is true for live entertainment or the NY State Fair (close to 100,000 daily attendance for a 2 week run). All these things are cancelled and there won’t be make up dates or residual demand.
The impact of non-events (like forgone haircuts or meals out) will take some time to work through the broader economy. Also, habits will change even if there is a vaccine or miracle cure.
I failed to include live entertainment and sports. Thanks for the addition.
Yves, related to colleges are SAT prep programs.
I think one college, maybe more, recently announced that SAT would not be necessary.
I suspect that the really interesting and alarming consequences are going to come from the interaction of a number of these factors, sometimes in unforeseeable ways. Consider, for example, what other industries or sectors are impacted by business travel: travel companies, foreign exchange companies, airport duty free shops, taxi companies, car hire companies, makers of business travel applications for smartphones, translators and interpreters, portable computers and electronics of all kinds, adapter plugs, expensive luggage of all kinds, upper-tier restaurants and hotels where foreign languages are spoken, sources of business entertainment, certain personal services, um, sometimes sought by travelling businessmen, security staff at hotels, insurance companies, risk-management consultancies, medical and vaccination services, dry-cleaning services, spas and beauty services, legal advisers on doing business, even the little shop in the lobby that sells business books, expensive souvenirs and overpriced essentials that you typically forget. None of these industries will necessarily disappear, but all will lose the most lucrative part of their business. In conjunction with fewer tourists though, (which must now be a given) some or all of them may go down, or at least be drastically reduced. And it’s likely that there’ll be a general retrenchment of staff deployed abroad and the presence of international organisations. So if you do eventually get that trip to exotic destination you have been promising yourself for some years, you may find that there are no decent hotels or restaurants and no proper taxi service to your run-down hotel where nobody speaks English.
The other thing is tertiary education, where the problems go well beyond a lack of Chinese students (who can still register to study remotely of course). A number of universities in Europe have simply cancelled all in-person classes next year, and there is a huge and rather ill-directed effort under way to establish complete online learning systems. Nobody has any idea what the long-term consequences of this will be, for jobs, research, careers and even the survival of many institutions, but they won’t be pretty. A lot of degrees simply can’t be done on line. And of course the economies of many towns and cities are partially dependent on students and staff spending money, and buying and renting houses.
So if you live in a small but pleasant university town with a flourishing tourist industry, a science park and an international conference centre, you own a restaurant and your brother owns a taxi company, it might be time to consider something else.
While not directly connected to the pandemic, it is overlapping in timing of the economic damage. The collapse of oil prices has laid waste to the shale revolution. Prior to the oil price war oil production and the money being poured into it was actually a substantial portion of GDP growth. That isn’t likely coming back soon if every.
GDP growth . Forget it, it’s over . De-growth is the new normal. This reality will become apparent as the parasites – hedge funds, private equity et al – begin to fall later this year.
Anecdotals from my visit the past two days with my mother-in-law.
A lot of pent-up cash from well-heel’ed pensioners who had booked expensive vacations but have now cancelled. Several are going to replace not old but not new either cars using the holiday fund. So some uptick will come from that.
As for retail, the garden centres were doing a good trade at the checkouts but the upscale cafes which are usually attached are still closed and this is what makes the difference in this sector of retail’s business model here between break-even (at best) and good profits. But they’ll survive.
However, for retirees (who are of course at higher risk of COVID-19 fatality spectrum) there is no — absolutely zero — desire to hit the malls and the large stores. Even if it wasn’t for trying to maintain social distances, the prospect if you’re in your seventies or eighties to queue (usually for a time in the open air) for an uncertain wait just to get in is a huge disincentive. Add in the lack of catering and this is going to be hit very hard if my sampling is anything to go by.
The mid-level pub and restaurant trade will be decimated. There was over-supply before and this is now chronically exposed. All we passed were shuttered — some offering take-out, which might be a life line but they are typically too far from the town centres to compete with the cheap kebab, chicken and Indian walk-ups. Plus, people won’t pay a gourmet premium to spoon something out of a foil tray themselves. However, at the lower end of the market, those fast-food places with drive-thrus will be fine — queues round the block at McDonalds, KFC and Starbucks.
Residential real estate is also mixed. Nice places in good lots in ready-to-move-into condition have sold — retirees moving from London and the Home Counties have lots of equity and are buying for the long term (well, as long term as you get aged 65-75) so aren’t interested in the losing sleep over the possibility of a 10 or 20% correction if one happens — they want to move usually to be nearer family, to get out of over-developed London and the South East and to enjoy a retirement lifestyle.
However, properties which are not retiree-friendly (e.g. not bungalows or apartments in full-service blocks with lifts) are a serious drag on the market. This https://www.rightmove.co.uk/property-for-sale/property-70609848.html had hung around for ages for the vendor. I suspect it is an executor sale. Traditionally, disaster-areas like this property is would get bought by developers (usually builders) to flip after gutting and refurbing but of course, this business-model is utterly dependent on not overpaying in the first place in a falling market. Here, the owner is just calling it quits and auctioning it off (very unusual in the UK property market but probably the right thing to do as at least it’ll be settled and they’ll get their money without the hassle and stress of something that might sit there unsold incurring maintenance costs and property taxes for a year and even if it does sell, it’ll be a low offer because of the condition it is in and would entail possibly a collapse-prone chain that could all fall through at any minute). So residential real estate here in the UK — a crucial part of what props up the wider economy — is showing early signs of stagnation and is very quality- and price-dependent.
Here in Oregon we have had a serious outbreak of Covid in a seafood packing plant in Newport. And we learn that the majority of the workforce come from Guatemala, Serbia, and Ukraine.
How can this make economic sense?
Clearly the wages are too low for native Oregonians. But Newport Seafood must pay gangmasters whose fees include travel (bus from Guatemala, several planes from Serbia and Ukraine) plus accommodation for the crews.
The set-up seems both crazy and an excellent way to spread the virus. Added to which many of the Guatemaltecos speak a dialect called Mam which makes contract tracing more difficult.
Surely paying decent wages, in Oregon, Guatemala, Serbia and Ukraine, would be a tidier solution for all of us.
A large greenhouse (64 acres under glass) near here was the largest COVID cluster outside of NYC. Two hundred “guest” workers were housed 4 to a room, 2 in each bed at cheap motels.
The Canadian owners pay local workers and “guests ” $13/hour. But the labor contactor gets an amount on top, plus there is the housing, food and transportation for the “guests”.
If one were cynical /s/ one might think the game is to have a reserve army of “guests”, ready, willing and able to displace any uppity locals.
Maybe if the Canadian owners paid $25/hour for locals, no guests would be required. BTW, they pay no property tax on the $100M facility and get cut rate electricity.
Here in our small town (pop. around 14,000) the local food processing plant which cans peas, corn, and other vegetables was the site of a 400% increase in CV cases. It is the biggest spike we have seen, going went from 18 cases to almost 90 in the space of a couple of weeks, although our county is still doing pretty well in general. The plant was shut down for a couple of week but now seems to be running again, I assume with greater safety measures now implemented. At one time it was mostly local white guys who worked in the plant but nowadays there is a much larger percentage of Hispanic workers.
on my fone in chemo parking lot so please forgive lg thumb
what effect on real estate… especially out in the sticks?
and follow on effects on property tax, since valuation is (theoretically)tied to what you can sell it for?
if my county’s re crashes, nothing selling, my econ101 says valuations go down and taxes follow.
but this goes against the perceived orthodoxy of the tax assessor and re in general
something i was thinking about on 4am jointwalk
Here in the suburbs of DFW houses are selling like hotcakes. Not exaggerating. Multiple offers and prices over list. Selling in days after listing. I can’t fathom this in Covid times. The uncertainty alone makes that impossible to consider.
A family down the street just sold to move into a house a couple miles away that has a pool. Are they not noticing that the economy is in shambles? Does it not occur to them that the knock-on effects might eventually affect their household? Even if your job is safe now, it doesn’t mean that it will be in the future! Maybe now is not the right time to make a major upgrade like that! I just can’t…
In the meantime my taxes and insurance are going up.
Home sales here are really hot – a big exodus from Seattle is driving it.
Exodus from San Antone and Austin(and everywhere else) is what worries me…bunch of rich folks invading this place is the last thing i want.
Local PTB kept it in check for a long while yammering on about the radium in the water(you’d hafta keep a sink-full overnight, in a closed up house, for 75 years for it to have a measurable effect)
Most of this clandestine effort was to keep the big cities from taking our groundwater…but it had the ancillary effect of limiting ingress to rich anti-science types(sigh).
The people who can afford to move right now I assume are not people i’d want as neighbors…Todds and Karens, bringing Civilisation to us hill people.
So, to be cautious, drinking radium contaminated water may be a whole lot more dangerous than breathing the same amount of radium diluted over the volume of a house.
actually, it’s not.
standing water “radiates” the alpha particles that linger in the air,build up in the house, and are inhaled.
drinking this water, the radium just goes right through harmlessly.
all of the science i’ve seen on this says it would take 70 plus years of such indoor exposure to have an effect…and the effect is so dilute that any lung cancer that does develop is more easily attributable to other causes(like the pesticides, etc. that folks here historically got exposed to when we were still a farming community).
This is also borne out by the incidence of lung cancer in the county(average). In fact, most of the cancer here can easily be associated(due to type of cancer) with metabolic disorders,agriculture, or the groundwater contamination of 2 old gas stations that leaked for 30 years in town. There’s a sort of hidden “mitigation machine” of some kind, behind a board fence just off the square that’s supposedly cleaning this groundwater. Private wells are forbidden in town, and the City Wells are much, much deeper, in a different strata altogether.
Both the ag chemical and gasoline leaks are from a time when such considerations were largely ignored(took a while for environmentalism of any sort to reach out here)
If you have plenty of cash, a downturn is the time to buy, assuming prices are cheaper. I’m not sure they are, yet. Not enough forced sales yet, I’d imagine.
On the flip side, once you realize that your employer will probably let you telecommute from Vail, CO, the condo in the big city may seem inconvenient to the slopes. I imagine there is some demand in that dimension too. For the less adventurous, there are always the ‘burbs.
Anecdote:
My employer is a utility district in so-cal, providing potable water and sewer collection to several cities. Every one of the cities has indicated that not only will they be unable to tolerate this year’s planned rate increase (which all agreed to and planned for 2 years ago) but they will also seek relief from current obligations.
Naturally, virtually every new capital expenditure has been delayed or cancelled. The conversations we have with our upstream providers sound a lot like the cities
It’s too soon for me to see the long term damages, but I’m also not a very good judge of these affairs.
We were “becoming a bedroom commute for Seattle because Seattle home prices are clearly crazy” prior to CV, and I’m not sure how that will continue in the long run. Our local downtown is almost entirely dependent on tourism and I suspect that it will take a significant hit.
I live on the North Olympic Peninsula. ‘Tourism’ is probably gonna suck going forward, especially if lockdowns resume due to any future viral hotspot flareups. Our downtown has partially opened up, but for how long … ??
We also have 2 large building projects going on downtown – construction having begun last summer, came to a standstill when the virus hit, then resumed. Both venues predicated to some extent on out of towners spending their $$$ here. I think the virus just put the kibosh on those rosy plans.
Re: “American household spending in the 1960s was powered by rising wages and growing home equity. But wages have been largely stagnant since at least 2000”
Starting the clock at 2000 glosses over the wage data from earlier years, which was none too good.
Per table 1 in https://fas.org/sgp/crs/misc/R45090.pdf, real wages for USA men at the 50% percentile level are down -5.1% over the 1979 to 2018 time frame.
When women’s earnings are added in the real wages at the 50% percentile level have risen a total of 6.1% over the 40 year inclusive time frame.
Given that the USA has had infrastructure declining (lowering quality of life), housing, medical and educational costs rising in excess of inflation, USA wage earners were hurting, at the median level, well before Covid-19 and well before 2000.
One might argue that many wage earners have adjusted to this new normal BEFORE Covid-19 and this could steel them somewhat for Covid-19 effects.
Shops are already going under here in Silicon Valley. I’ve driven down Santa Cruz Ave. in Menlo Park a few times over the last week and there are a fair number of empty storefronts. It is the fancy shopping street in town. Since I don’t actually shop there I couldn’t tell what sorts of shops had closed.
This piece appeared on Zero Hedge today! (https://www.zerohedge.com/economics/8-reasons-why-covid-19-damage-economy-will-be-deep-and-lasting)
Today’s NYT backs up Yves virtually verbatim:
A Tidal Wave of Bankruptcies Is Coming
By Mary Williams Walsh
https://www.nytimes.com/2020/06/18/business/corporate-bankruptcy-coronavirus.html
Almost any passage is quotable, but this caught my eye:
“Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.”
It’s only a question now of reorg or liquidation bankruptcy.
Thanks for the kind words.
It is hardly the most important detail in the story, but I see 24 Hour Fitness is closing 100 locations. I would visit one when I was in Dallas. It was the best gym I’ve been to, lots of very well selected equipment, the only place I ever saw with 2.5 dumbbell increments up to 52.5 lbs, many trainer toys, pleasant space. This is a real shame, and I am sure other readers will see names of businesses they patronized and liked.
Professor/Administrator in California State University here. I’m on the campus team trying to respond and thus reading everything current in Higher Ed on this. The conclusion is that high end and low end will be OK, but private colleges in the middle are screwed.
Students go to college for four reasons:
a) signalling;
b) networking;
c) skills acquisition; and
d) parties
With instruction online, b) and d) disappear. The elite universities can coast because of a) and endowments, the lower cost state universities like mine are seeing enrollment *increase* because, in a recession, many students on the line about attending college choose c) over unemployment. And as our tuition is only $7K ($12K for out-of-state/international), plenty of the cash-strapped middle class will dial down to us.
But expensive, tuition-driven (eg little endowment) private colleges are going to be hit very hard if they can’t offer the whole traditional in-person experience. Most of these have announced that they will be meeting in-person, but the unspoken assumption is that they are lying to their prospective students, and will pull the football away at the last minute.
The media will dwell on “the death of higher education” at length, because these were the colleges that many of them went to. But the reality is that their share of the pie is relatively small. State universities have a much larger enrollment (the California State system has 23 campuses with an average of 22K students each) and the elites have featherbedded the Ivies, so both will survive, even if the former have some belt-tightening.
I’m not as certain as you are that big name unis will not suffer too. I think this is them believing their own PR.
Harvard is already trying to get employees to take early retirement. And in a long interview, Larry Summers went on in a long Business Insider interview about how universities (clearly including Harvard) should close down entire operations that were losing money. He advocated that Harvard should largely abandon live instruction and instead should become a MOOC, since it could easily get 20 million students.
To label ‘d’ partying is unfair. D is being with their peers, building their first independent relationships, falling in love.
Mine will be a soph in UC system, and is processing the announcement from the school yesterday that only some students will have classes, the rest will be online. They all read that to mean STEM majors will get the in person experience.
He and his friends are all deciding whether they will bother or take a term or two off—because zoom school sucks. Or, as he put it, “why would we pay $20,000 for me to rent an apartment in Santa Cruz and attend Phoenix University?” Universities may find students not willing to waste resources on distance learning. Especially if there’s no job at the end of the rainbow.
BUT if he skips a term, what to do in that time? Jobs hard to come by and risky.
I feel for the kids. Unlike that family blogger Joe Biden.
Re small biz and recovery: my employer got some PPP money, although the impact has not hit our magazine in a big way. Yet.
But we, like other business-niche publishers, made a good bit of money from conferences and such live events. Partly, it’s direct earnings, but there are other ways live events fueled our biz. I believe Institutional Investor had basically ditched publishing for the conference business. We hadnt gone that far (we weren’t that good at it).
Also, the boss is drooling over the idea that he can ditch the monthly rent for our manhattan offices. Our ship is so tight that I do not worry about getting laid off, only that the entire enterprise could go under. So far that’s not happening, but past performance… etc.
It’s going to be deep and lasting because it only increases the systemic problem of growing income inequality. There were viruses before and there will be more after. In this case, the response was to grow the ghetto, faster. Fintech has to go in for the kill shot here.
DC control technology can only increase income inequality so long as it is the primary recipient of MMT. It’s one and zeroes, a completely arbitrary binary outcome.
Q: when does 1 + 0 =0?
A: when the only difference is perception, electronic money.
Relative to the planet, let alone the universe, there is no such thing as an expert. Having tribes of experts competing to see who gets to play God on any particular day can only result in a completely artificial world.
It doesn’t get better from a phantom abutment.
The video game industry are making out like bandits, for now at least.
Wonder how this will impact the coming console generation though. How many people will have four or five hundred spare smackers for a new system (or twice that for both new systems), plus new games at 60 bucks each?
And will the assembly lines in Taiwan and China even be running? Nintendo was expecting to have its production back up by this month, yet the Switch is still out of stock almost everywhere. And that’s for an existing, well established production line.