We have written quite a bit about the stock market and your portfolio but as Kai Ryssdal, the NPR host of "Marketplace", is fond of saying, "the economy is not the stock market and the stock market is not the economy". While the stock market tends to be forward looking and can quickly adjust prices to factor in reductions in corporate profits, layoffs, etc., the economy takes longer to feel the effects of a protracted slowdown in growth. With scary-looking numbers coming out each week on unemployment claims and revenue decreases, we thought we would provide our thoughts comparing the coronavirus economy to the Great Recession economy. Our goal is to provide you with some additional depth beyond the headlines that scroll across your social media feed or that you read in the newspaper.
1. This Recession is Different: In a typical, business driven recession, workers lose jobs and companies are closed because they had existing issues with their operations (e.g., not enough cash, too much debt, declining market, etc.) and those issues are exacerbated as overall demand decreases. As we head toward a possible recession driven by the coronavirus, the reasons for workers losing jobs and companies closing is different. Some of these companies are certainly poorly run but the primary reason they are closed is because the government mandated it. In our opinion, it is a much different issue when your business is closed and workers furloughed due to a proactive move from the government and hopefully there is enough potential demand across the economy that the recovery will be different too. We don't envision a fast recovery, but as businesses slowly begin to open, they will attract folks who have been cooped up in their house, which drives demand and requires the business to hire more workers.
2. Not Every Industry is Suffering: In a typical, business driven recession, almost every industry suffers at the same time as demand for most goods and services decreases. In the coronavirus driven slowdown, we are seeing pockets of the economy that are being devastated (e.g., travel, hospitality, restaurants, etc.) but other areas that are doing very well. For example, as compared with sales in March 2019, the advanced adjusted sales in March 2020 were down 6.2% for retail and food services but up 28% for food and beverage stores. Furniture and home furnishing stores sales dropped 24.6% but building materials, garden equipment and hardware supplies were up 7.6%. This is not to ignore the suffering of the millions who are out of work, but to point out that buyers have shifted their demand to specific industries as opposed to decreasing their demand for most industries. To see the full Census report, click here.
3. Industries are Hiring: For those who are out of work, there are industries that are hiring, which is always welcome news. As demand shifts online, grocery delivery companies like Instacart and everything delivery companies like Amazon are hiring (300,000 and 175,000 positions respectively). Other industries that are hiring are pharmacies (50,000 positions at CVS and 25,000 at Walgreens), hardware stores (30,000 positions at Ace member stores and 30,000 at Lowes) and grocery stores (20,000 positions at Kroger). While many of these positions will not come with benefits, they do provide income for folks who need it. To see a full list of who is hiring, click here.
4. The Service-Based Economy: Many of the first workers to lose their jobs were in the lower end of the service industry (e.g., waiters, bartenders, hotel staff and gig economy workers). Part of the reason unemployment claims are so high is that this crisis hit sectors of the economy that needed to be shut down immediately and that employed a high number of people. Most of these hardworking employees will hopefully be able to find bridge employment in a sector that is hiring and many will ultimately be able to return to their prior positions as the economy reopens.
The biggest unknown right now is how long we are going to be restricted in our movement. The longer the shelter-in-place orders last the more we believe demand will dry up because households will become more concerned about money. However, we do believe that a health crisis driven economic slowdown is much different than a financial driven recession like the Great Recession. While some households will be tentative about re-entering society, there are many households, who for personal and/or business reasons, will have to or want to re-enter society and will begin to go out to dinner, see movies and travel. Therefore, we encourage you to look beyond the headlines you see online and in the newspaper and think about how our current economic situation is different from the one we faced in 2008 and 2009.
Take care and to better days ahead.