The Middletown Press (Middletown, CT)
Economic toll of virus sinks in, duration remains an unknown
The Dow Jones Industrial Average over the past five days: up 1,293, down 785, up 1,173, down 969, down 256. The Dow sank as many as 894 points Friday before recovering much of its losses. The VIX, an index known as Wall Street’s fear barometer, touched levels not seen since the financial crisis. The uncertainty and potential economic damage from the coronavirus deepened this week. Sectors that cater to almost any public activity — movie theaters, business conference organizers, hotels, airlines and amusement parks — have lost billions as investors flee to areas they perceive as safer, like U.S. Treasury notes, which now pay paltry amounts that are far less than inflation. Following is a brief look at how things are changing in the economy and the workplace today as the outbreak widens.
Headwinds
Germany’s biggest airline, Lufthansa, says it will cut up to 50% of its flights in the next few weeks, depending on how the virus outbreak develops. It said it had seen a drastic drop in reservations, with all regions now affected. Lufthansa, which also owns Swiss airlines and several smaller regional European carriers, operates over 83,000 flights a month. The airline earlier announced plans to cancel all flights to and from Israel for three weeks after Israeli authorities announced tough restrictions on travelers from several countries.
The airline industry is among the hardest hit since the outbreak, forcing carriers to reassess their near-term financial expecta
tions. An industry group said the spreading coronavirus could cost airlines as much as $113 billion in lost revenue. That figure, released Thursday, is four times the number released just two weeks ago by the The International Air Transport Association, which is imploring governments for assistance.
Declining reservations have rippled outward to commercial aerospace companies. “The impact on airline profitability appears to be worsening by the day, and the spread of the virus and the impact on air travel has rapidly exceeded expectations of just a few days and weeks ago,” wrote Ken Herbert, an industry analyst with Canaccord Genuity.
Shipwreck
Passengers on a cruise ship off the California coast were instructed to stay in their cabins as they awaited test results Friday that could show whether the coronavirus is circulating among the more than 3,500 people aboard. Test kits were lowered onto the Grand Princess by rope from a military helicopter and they’ve been sent for analysis at a lab with the ship moored at sea just off of San Francisco, where it has been ordered to remain. Meanwhile, cruisers with upcoming trips complained on Twitter about difficulties getting cruise operators to offer refunds for canceling trips. Cruise stocks have been hammered since the outbreak began. Norwegian Cruise Lines and Royal Caribbean have both lost more than 50% of their stock value since the start of the year, while Carnival Cruise
Lines, which owns the ship stuck off the California coast, has seen its stock drop 47%. Analysts expect cruise companies to offer heavy discounts as coronavirus fears lead to canceled trips. The cruise industry provided 1.2 million jobs and paid $50.24 billion in wages and salaries in 2018, providing an estimated $150 billion in global economic impact, according to Cruise Lines International Association, a Washington-based group that represents more than 95% of global cruise capacity.
The macro view
Citing the outbreak Friday, Moody’s lowered its baseline growth forecasts for G20 economies to 2.1%, from 2.4%. It lowered its U.S. growth forecast for 2020 to 1.5%, from 1.7% and dialed back growth expectations in China as well. Moody’s said more downgrades are possible.
“Several plausible developments could lead to a far more negative scenario than our baseline forecast,” said Moody’s Vice President Madhavi Bokil. “A sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment. Such conditions could ultimately feed self-sustaining recessionary dynamics.“
Citi believes that central banks worldwide need to counter growing market uncertainty. “The optimal policy response to the reduction in demand due to the virus outbreak is likely to be fiscal action,” said Pernille Henneberg in a note to clients. However, on Tuesday, the U.S. Federal Reserve in a surprise move cut its benchmark interest rate by a sizable half-percentage point in an effort to support the economy.
Shares rallied, but only briefly. The Dow ended Friday down 1%.
The White House on Friday said its considering federal support for industries absorbing the brunt of the fallout. Larry Kudlow, director of the president’s National Economic Council, told reporters that the administration is not looking at a massive federal relief plan, but rather a “timely and targeted and micro.”
President Donald Trump signed an $8.3 billion measure Friday to help tackle the coronavirus outbreak, but Kudlow said that money was directed at the public health system.
Stockpile economy
The spread of coronavirus, which has sickened more than 100,000 people worldwide and killed more than 3,400, has led to a wave of stockpiling. People are loading up on canned goods, frozen dinners, toilet paper, and cleaning products. Heavy supply runs are expected to last for weeks, resulting in a boon c or stores and also food delivery services.
Costco’s Chief Financial Officer Richard Galanti described the buying frenzy
as “off the charts” in a conference call this week. Shares of Wholesale Corp. of jumped almost 11% this week, one of the few gainers on Wall Street.
Instacart has reported a surge in demand for pantry items such as powdered milk and canned goods, as well as personal care products like hand sanitizer and vitamins. Sales of hand sanitizers in the U.S. soared 73% in the four weeks ending Feb. 22 compared with the same period last year, according to market research firm Nielsen. Sales of thermometers spiked 47% during that same period. Online purchases of toilet paper have nearly doubled and non-perishable items like canned goods rose nearly 70% during the January and February period, according to Adobe Analytics.
“This is a big time of anxiety, and we know the biggest source of anxiety is uncertainty,“says Stewart Shankman, professor of psychiatry and behavioral sciences at Northwestern University. “People are trying to get a sense of control by buying things you really don’t need. It’s a false sense of control.”