Economic Report Synopsis

I know many of our readers are business professionals and are keeping a close look at the economy as it relates to their businesses and industries. I always monitor sell-side reports via access I have to different report portals, but over the past few weeks I’ve been reading every report on the economic downturn, I can get my hand on. I wanted to share a summary of some of the key take-aways I gathered that help us frame where we are today and what the next few years can look like.

Below are some top-level points about what everyone is calling the Great COVID-19 Recession.

  • No Quick Recovery: There was a brief thesis going around that the economy would see a V-shaped recovery. Essentially a rapid recovery after the large dip. There is generally no one who holds that thesis any longer. The V-shaped recovery thesis hinged on a rapid slow down and victory over the COVID-19 pandemic, and a return to life as normal would not take more than 60 days. That is no longer possible, as defeating the virus is taking much longer.
  • How Long Will be in a Bottom? The conversation has now shifted to how long will we be at the bottom of the recovery curve? Nearly every economist report I’ve read now suggests the earliest we could see some recovery would be in Q4 of 2020, and most believe it will take all of 2021 for us to recover fully.
  • How Bad Will Unemployment Get? This question saw little to no consensus. Which I generally view as positive because the variance means it may not be as bad, but it may also not be great when it comes to unemployment. Economists range from the worst-case scenario I’ve seen of unemployment at 28%, and more consensus thought around 14-18% range as the worst case. Both scenarios are significant when it comes to job losses, the need for government intervention, and the deeper the job losses, the longer the road to recovery.
  • The Hit to GDP: All economists point to t Q2 2020 being the biggest hit to GDP. This is logical since the expectation in the US will see the worst of the virus in April and May and then start to see it slow down 🤞. The worst-cast GDP scenario I found was GDP contracting as much as 45% in Q2 20, and that came from Morgan Stanely. That was their worst-case scenario, and their best-case scenario has 2Q 20 contracting to 23%. So both cases, that is still a large hit to GDP. Most other economic reports I read had their worst case GDP declines at 20-25% in Q2 and everyone seems to believe in a soft-ish recovery in 3Q and slightly more in 4Q although everyone agrees GDP will be down all of 2020 now.
  • What Will Be the Hardest Hit Industries? Consensus is found here that the top industries hit will be (in order) recreation services, Food services & accommodation, travel and hospitality, automotive, clothing, and home furnishing round out the top. I found a subsequent report on payment spending, which was a survey of 5,000 consumers across all income levels that validated these industries are the ones where spending cuts seemed to be the harshest.
  • A Good Sign on Savings: Per the last big recession, one of the big worries was the knowledge that most American’s did not have ample savings. All data today indicates a better savings cushion for most than in the last recession. The data also suggests most American’s started to prepare and save seeing the trend coming in the economy as early as Feb with a savings rate continuing to be higher than normal through March. This suggests supporting basic need consumption over the medium term, which is why economists agree not every industry is hit. There will be industries that benefit as consumers do have a cushion of discretionary spend this time where they didn’t in 2008-2009. This cushion is a reason to believe the depth of the recession will not last as long as the worst-case scenarios as there is angst to get the economy going by every, one and all will be incentivized to do so.
  • The Fed Still has Options: I understand the necessity of government aid. Still, given our current debt situation and the monetary policy and currency cliff we keep getting dangerously close to, I worry about the government screwing this up more than anything. Still, economists believe there is more the fed can do to ease the pain and inject stimulus back into the economy. The interest rate will stay at 0% for some time and disinflation (not deflation) for a few years. Assuming this holds, and we do see disinflation, not deflation. This is actually a positive economically as it will result in some better pricing opportunities for many. I’ve long been a fan of the boom, bust, buildout theory due to the value it brings in access to goods at lower prices which leads to innovation. While we are not in as large of a bust as past bubbles, what this situation is resulting in is pricing strategies of goods and services that, I believe, will spur an innovation cycle for a period. It is likely this disinflationary period is not long, which means prices will go up before too long, savvy businesses will capitalize immediately on the opportunities rather than cut back. Across the board, we will see “deals” that were previously not to be had.

Structurally it seems everyone views this recession as quite different than previous ones. Which is a reason there is more optimism going forward for a full recovery and even some positive economic changes as a result. Nearly every business has had to make changes they would have never made had they been forced to with humans not being able to leave their houses. Most of the industries I mentioned who were hardest hit are being creative in these times and many using digital/online technologies to still offer engagement and commerce. I have long said they someday every company will have to be a technology company but I was reasonable in any forecast of that happening because of how slow so many companies can move. Especially when they are not pressed to the fire. The situation around COVID-19 has forced many into the fire and while not all establishments will make it out those who do will have been refined and stronger as a result of the changes they made.

When we look back at this event in many years, I do hope it serves as a springboard to bring more businesses, governments, and humans into new and better processes that will better prepare us as a civilization for the turbulence that will inevitably find us, but also force many companies to shake off the crust the have developed and be in a better position to keep innovating into the future.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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