National Post (Latest Edition)
Business es stuck in a state of ‘suspended animation,’
The scars from this business cycle will take years to heal, says David Rosenberg.
There is a raging debate as to whether life ever gets back to “normal,” whatever that means.
For example, there is a belief that with a vaccine or not, the citizenry is getting fed up with COVID-19, and everyone is aching to go out to eat and drink and gamble and browse at the malls ... and dying to go back to the office. That is the narrative, but it is not the reality.
The polls had already shown how attitudes have been shifting on a secular basis. Even the things that are moving, and moving fast, such as housing sales, are being driven by activity in rural areas and toward single- family units and away from multi-family. There is a much greater appreciation for open space now than there used to be, and that is not going to change in the future.
Neither will working from home, for those who can. The Federal Reserve Bank of Chicago conducted a survey in the spring and found that three- quarters of companies say the U. S. economy needs at least a year to fully recover from the pandemic. There were 670 respondents in the poll and half told the Chicago Fed that the recovery will take between one and two years to develop. The other half was split between a recovery in less than a year and one that would take more than two years.
“Many of the small businesses we heard from — especially those in the entertainment, tourism, recreation, restaurant, and retail sectors — are in danger of financial distress,” the report said. “Many businesses are facing very difficult challenges that are unlikely to go away quickly.”
Tally up those sectors and they supported 32 million jobs before the crisis, or about a third of the private- sector workforce, and it looks to me as though half of their workers are not going back to their old jobs. I’m not sure many people understand that amusement parks, airlines, hoteliers and restaurants cannot stay in business at 50- per- cent capacity ( or even 75 per cent in the case of restaurants).
People have to understand that a cyclically- sensitive consumer- oriented sector, such as restaurants, spends 30 per cent on labour, 30 per cent on rent and 30 per cent on food — they have a 10- per- cent margin. So good luck with a partial reopening and social distancing.
As it stands, the United States Chamber of Commerce said that 25 per cent of small businesses have already shut down. Another survey by Ipsos concluded that two-thirds of people are still nervous about leaving their homes; 59 per cent say they intend to remain locked down on their own until signs emerge that the virus is “fully contained.” A YOUGOV/CBS poll concluded that 85 per cent of American households say they wouldn’t get on an airplane even if they could — that’s why the industry needs a bailout.
A Washington Post/ University of Maryland poll shows that only 56 per cent of consumers across the U. S. intend to shop at the supermarket, which I suppose is a continuous bullish data point for delivery services, but that’s about it. Just 33 per cent say they are comfortable entering a retail store. And a mere 22 per cent say they are willing to dine in a sit- in restaurant.
All these polls say basically the same thing: it will not be “business as usual,” as the bulls will try to convince you, and the best we can hope for is a partial recovery — at best.
What we had on our hands was a vertical economic decline with job losses higher than anything witnessed since the Great Depression. Even as the stock market tells you that it has it all figured out, I can assure you that what we face at this very moment is a very uncertain economic future. And, unfortunately, most of the longer- term risks are to the downside.
We are in a depression — not a recession, but a depression. The dynamics of a depression are different than they are in a recession because depressions invoke a secular change in behaviour. Classic business cycle recessions are forgotten about within a year after they end. The scars from this one will take years to heal.
Outside of the Treasury market, asset prices still don’t reflect the economic depression because they have been so heavily sedated by unprecedented fiscal and monetary policy stimulus. Beneath that veneer, there is rot.
We shall see how long governments can mask what is really happening organically in the economy. At some point, the well will run dry. Nothing lasts forever, not even what seems for now to be an endless lifeline of government support.