Last week, the White House stated that the economy will “come back strong” after Commerce Secretary Wilbur Ross announced “It should not take long for us to see the economic recovery unfold.”
Either Ross is not being straight with us — after all there is an election coming up — or he needs to get out from behind the marble walls of Washington and take a look around America.
The economy is the sum of millions of small economic and social decisions, and if policy makers want to know what the next year will be like, they need to step away from the cable news cameras and walk through American streets. There they would discover five common-sense reasons why we need to brace for a slow recovery.
- Slow re-opening: Many businesses will not fully open for months. When a baseball stadium is empty, no hot dogs and beer sold are sold. When a restaurant seats people at half-capacity, there will be fewer tips for waiters. As universities teach remotely this fall, they will need fewer janitors and cafeteria workers. No amount of Presidential tweeting can change this.
- Hiring: Almost every business owner I talk with tells me that when business recovers, they won’t rehire the same number of employees as they laid off. For many, COVID-19 furloughs were an opportunity to right-size their cost structure, and over the last few months, service companies found ways to get the same work done with seven drivers instead of eight, bakeries watched 11 bakers make as many loaves as 12 once did. We know of course that fewer paychecks means lower consumer spending, but also higher productivity.
- Municipal budget cuts: Nearly 17% of our nation’s GDP is public spending by state and local governments — everything from new courthouses to playground swings. That spending has increased each of the last five years, fueling much of the country’s economic growth. But the pandemic has strained state and local government reserves, and tax receipts will be down. In our own state, Gov. Gordon has told state agencies to cut “as much as they can.” That means in the next year, fewer fire trucks will be built and sold, last year’s high school football uniforms will be fine for another year and the proposed sewer project will have to wait for better times — a situation that will be repeated in all 50 states.
- Seasonality: There are segments of the economy that are seasonal in nature, and these sectors can’t make up for lost revenue until next year. The August trip to Yellowstone, the September wedding that was moved from Jackson to Zoom, and Cheyenne Frontier Days are lost business, no matter what. Those companies that were dependent on events this summer at the CAM-PLEX won’t see that income for another year.
- Consumer spending: People and businesses are going to be more cautious with spending. Yes, many Americans received stimulus checks, but that was a one-time event. Since then, we’ve been dipping deep into our savings. Which means that this winter will not be the year to replace the snow shovel with a snowblower, in spring many homeowners will decide that the cracks in the deck will be fine for another year and that 2021 is not the year to upgrade the television to the latest 4K technology. Nevermind that there are whole vulnerable segments of the population that are going to remain socially distant until there is a vaccine.
These commonsense realities can’t be changed by a president’s tweet or a senator’s emoji. And beneath these very apparent main street trends lurks a more complex and pernicious set of dislocations: everything from credit to mortgage loans to private equity investing that fuels economic growth have been clipped in ways that are only starting to become apparent.
This question about what shape any recovery might take matters, and not just for presidential re-election prospects. Over the last four months we’ve built one trillion-dollar bridge after another, none of them coming close to getting us to the other side. The initial CARES act assumed we’d be back to normal in only eight weeks, a naïve position that left Congress and the Treasury scrambling to build a second multi-trillion-dollar bridge within weeks of completing the first one.
Rather than building yet another bridge to nowhere, we need to face our situation head-on, and focus on long-term economic prescriptions.