17 Apr 2020 Reawakening the Sleeping Giant

“I fear all we have done is awaken a sleeping giant.”

Japanese Admiral Isoroku Yamamoto when their attack on Pearl Harbor was completed

In February, when the US coronavirus outbreak started, our workforce reached a high of 164.6 million workers. Since then, close to 30 million, or 18% have filed for unemployment insurance. Given the rapid shutdown of businesses and industries, today’s release of the government’s Leading Economic Indicators point to a decline 6.7% in the US economy in the next six months.

But this time is unique. The economy was as strong as or stronger than it’s ever been leading up to this crisis; with more employed, large and small businesses setting records for growth, markets making new highs, and trillions of dollars being brought back and invested in the US by huge corporations in new plants and facilities – then STOP, go home, and carry on life in place until it’s safe to return to life as we once knew it, a few weeks ago.

The experts tell us that the economy can’t be re-started like a car engine, but that analogy assumes the engine isn’t running – it is running, albeit much slower. Roughly 20% of the economy is government spending, and spending they are. Another 12% is business spending; some are still spending, particularly food producers and distribution giants like Amazon and Walmart. Apple is busy rolling out a new less-expensive smart phone.

But for the US economy, the juggernaut is its consumer. Consumer spending makes up more than 70% of US GDP, and judging from all the brown, blue, and white trucks running around, spending has not stopped. Procter & Gamble just posted its biggest sales gain in decades as we consumers rushed to stock up on household products and medicines. Amazon and Walmart are hiring thousands to keep up.

It’s why president Trump and previous presidents are first and foremost, cheerleaders for hope and strength, because quite literally, the fate of the nation’s economic health depends on their confidence and spending. Unemployment and the threat of unemployment pull the floor from under that confidence better than anything else.

The government’s unprecedented cash distribution to households to support the unemployed and the frightened, loans to keep businesses afloat and sustain their payrolls, and huge loans to the oil, airlines, and hospitality industries are welcomed indeed by many, wasted on some, and not enough for most. But they are better than nothing. In the end, our recovery depends on us – the steel and resolve of the American people. As the Surgeon General said a few days ago “this is our Pearl Harbor.”

Our clear and present challenge remains that of the virus and maintaining the increasingly wearisome challenges of ‘sheltering in place,’ particularly as some areas of the country return to more normal life. Testing will go a long way to rebuild trust and confidence as regions of the country reopen. Pent-up demand will be satisfied, particularly in these newly liberated regions and that explosion will likely encourage those still at home to see their own futures more optimistically, motivating them to satisfy a little of their own pent-up demand as a reward for continuing their mitigation efforts. 

The next challenge is to bring our economy back up to speed. Employment should snap back in those areas re-opening soon. Small, middle-sized and perhaps even a few large businesses will close in those areas that open more slowly, making jobs tougher to come by in the most impacted areas of the coronavirus.

But remember, before the coronavirus season many businesses, large and small, reported difficulties in finding workers in the tight job market. Well, there are plenty of good workers on the market now, through no fault of their own. Economic recovery during this critical phase is co-dependent on consumer confidence and business confidence. If consumers return to normal spending, those businesses that survive will not only re-hire former employees, but the best will go on to absorb the rest in time.  

We are learning countless lessons from this pandemic, with the most important being that we can depend on one another, despite how divided we were politically (and still are). We do the right thing to self-distance, to protect and serve others as needed and to step back into the world with courage. We have learned who our friends are, who we can trust and who we cannot. This period in American history will prove to be yet another defining moment as we were yanked from innocence and thrown into a crisis born outside our shores. And just as in each crisis before, being our best, working with and serving others will get us though.

Please don’t hesitate to reach out with any questions or needs during these uncertain times. We are here to bring financial confidence to your life.