As most of the small business owners and their teams are either working from home or out of work as a result of the many statewide “shelter in place” rules, I keep thinking about the coronavirus economic recovery will look like. It’s hard to predict this since alot of the economy is still locked down, but the depth and length of the economic recovery can we shaped by the following factors:
Unemployment levels are already at record highs
At the lowest point of the Great Recession of 2008, 15 million people were unemployed. In the Great Depression of 1933, 15 million people were also unemployed. We are past that point now but, the workforce in 1933 was only 60M and now it’s 165M people.
The New York Times estimated that the unemployment rate now is 13% so that would be 21M already unemployed with big increases in April.
Here is my discussion with John Lawson on this subject:
Alot of questions around what the recovery looks like depends on several factors. These include:
How long will the actual shut down of the economy last?
30 days, 60 days, 90 days?
At this point, no one knows. Initial indications is that the “shelter in place” policy is working in the hardest hit areas and they are seeing a leveling off of new cases and deaths. But we can’t start to recover until the shutdown is over. In the Great Depression, it took the country 10 years to get back to the level of GDP. In the Great Recession, it took several years. We do not know at this point if recovery will be more “V” shape (quick) or elongated one (slow).
What will the reopening of the economy look like?
This will depend how much confidence people have in resuming their normal activities and consumer spending. If there is no vaccine for the coronavirus and no test for those who are immune, this could be much more cautious return and very sporadic Social distancing could continue and people would not go out to shop or participate in public entertainment activities. If the coronavirus comes back in second and third waves, it could be devastating and the shut down in effect could last 18 months. If it lasts this long, consumers could permanently change their habits away from how they spent their money previously.
The coronavirus has put things into stark perspective. It’s more important than ever that, as entrepreneurs, assets like office real estate are protected. If a pandemic strikes again, having an insurance to ensure buildings remain open and don’t have to deal with another shut down. Real estate lawyers and trust litigation attorney experts will need to be contacted, ensuring continuity in business.
What will effect the recovery the most?
It will also depend on the amount of aid that the federal government will give to consumers. A $1200 check once will not be enough to jump start the economy. I believe that countries that are giving a “livable” wage (like Canada and France) to those who need it now will have a quicker recovery. Another solution to get money in consumers’ bank accounts is to start a huge job works program like FDR’s “New Deal” that employed 20M people (a third of the workforce then) and pumped $3B into a much smaller economy. Infrastructure projects the the White House is discussing may also help.
Finally, how much will the Federal Government be helping small business owners, the heart of this economy get restarted? Clearly, the $349B distributed by SBA lenders that has been allocated is not enough. The government probably needs to allocate 4 times this to sustain small business payrolls over the next 9 months. This money also needs to get into small businesses soon and under the current Paycheck Protection Program, banks are slowing it down.
This does create alot of debt for the country, but nothing like this has every happened before in American history. Solutions for the coronavirus economic recovery will need to be innovative and bold with leadership from federal, state and local governments.
