April 30, 2020

A Recession is Very Likely: How Will It Affect Us?


Doesn't it seem as though we just finished with a recession, the so-called Great Recession, or the Very Bad One since Great implies a positive? Well, actually that was over ten years ago. Even so, there are segments of our citizens that never recovered fully.

The economy changed in some fundamental ways while the economic rescue plans tended to aid the well-off, not those struggling. Many middle-class individuals and families have spent the past decade largely stagnant in growth and well-being, even as an 10 year economic expansion was underway.

So, it may not be "official" yet, but the next recession is about to huff and puff and try to blow our house down. The stock market acts like someone on Spring Break, bouncing from feeling good to sicker than a dog. A whiff of good news, or bad, sends it off chasing its own tail.

While our economic system has regular boom and bust cycles, I think the odds are very good that we are beginning something none of us has ever lived through before: at some point trying to restart a virtually shutdown economy, all while protecting billions of people from a deadly disease, and restoring some sense of personal safety while re-engaging with others and leaving the cocoon we have inhibited for months....quite a tall order with many moving parts.

My best guess is a very slow, gradual, reopening of parts of both the economy and civic life. Personally, I hope the library is one of the first to welcome people back. It is such an important resource to all ages, providing services that have been vitally missed. Maybe parks that have been closed or playgrounds wrapped in protective tape will once again allow families to play outside.

Manufacturing and construction will probably be among the first industries to start up again. Chain restaurants and hair care establishments will also start the march toward normality, though maybe in ways that are different from before. Letting in only a certain number of people at a time, having shorter hours, continuing to stress social distancing and maybe masks...all are possible. Don't be surprised to see waiters still in gloves and masks, handing out disposable menus. 

Smaller restuarants, book stores, dry cleaners, coffee shops may be next. But, the question is how many will have survived the enforced shutdown? Just like the first six or seven years after the 2009 recession, I would expect to see lots of empty storefronts. Places I have frequented for years will be no more. Unemployment among these types of business will remain horribly high for the foreseeable future.

I hope gyms aren't too far down the restart list. Expect the request to wipe down equipment after use to become mandatory. Spacing between machines, treadmills, and even weight benches will change. Checking someone's temperature along with their keycard is likely.

Maybe one of the ways we will know things are really on the mend is when sporting events return. Will there be enough time to hold a major league baseball season? Will a 45,000 seat stadium only allow half that number in, leaving at least one empty seat between each fan? Will enough of us feel comfortable to attend to make even that half-size crowd reality?

Will the NFL start even close to on time? How about college football? Professional hockey and basketball are done for this season; is a fall start for the new season going to happen? How does social distancing work in such a packed-together setting? No sports until 2021? Depending upon a projected rebound of the virus in the fall, that is more likely.

Finally, more robust travel will start to return, both for business and leisure though with obvious changes in boarding and paperwork requirements. I do have serious questions about what will happen to the cruise industry and their massive floating cities. After all the stories of the deaths and people being locked in their rooms for weeks as ships hunted desperately for a port that would accept them means quite a leap of faith in getting onboard. 

What about schools and colleges? How will having 30 kids, crowded into a classroom, or 300 in a lecture hall, change? Will cafeterias no longer allow kids within a foot of the food serving line? Teachers, PE instructors...no one will be left in quite the same situation as last March. And, what will be done about the 2-3 months of lessons lost? Parents are doing the best they can but learning around the dining room table is not the same. 

I am the first to admit, I was relatively lucky in weathering the effects of the last recession. By having no mortgage I had no fear of foreclosure. By having no credit card debt I had no fear of bankruptcy (unless a major medical problem cropped up). By being almost eight years into my satisfying retirement at that point there was no job worry.

Our house did lose half of it's value between 2008-2012. Thank goodness we didn't have to move during that period. Even though my financial investments tend to be conservative, that doesn't mean I didn't suffer loses. My various retirement and savings accounts had a 40% paper loss in less than a year. That induced some serious stress, no matter how well your life is going! So, yes, the Great Recession was a pain in the butt for Betty and me, but nothing like it was to millions of people who were devastated. I feel embarrassed to even place myself in the same general category.

My feeling is what we are going through now, with virtually a shutdown world, the unemployment figures, the massive debts our government is generating, the destruction of way too many small businesses, the uncertainty, and the time lag before a vaccine is available to make us feel even remotely safe, will combine to make what we went through ten years ago seem like a minor bump in the road.

What gives me long term optimism is the spirit of people helping people that this crisis has unleashed. The realization we are all in this together and will get out of it together could make the Covid-19 disaster recovery period very different from the Great Recession. 

I believe when this is behind us, two, four, or five years from now, our economy, political landscape, and society will have undergone some profound changes. My hope is we emerge with a fairer, more equality-based system. That we will have learned that we are strong individually but also as a group; our neighbors are our support and friends, not our enemy.

Preparation for future disasters will take a much higher priority. Wishful thinking or sound bites will be replaced with open-eyed acceptance of the facts. Our health care workers and providers, first responders, and teachers will be elevated in terms of both status and remuneration.

And, the people who helped keep us fed and protected, at personal risk to themselves and families, will be recognized for their importance, both in how we respond to them and how they are paid and protected.

A recession is a given and it is going to be nasty. There is going to be a large human toll. Even so, I have every hope that we will come out of it a healthier, stronger more humane society.


16 comments:

  1. Hopefully nurses and EMTs and such will receive remuneration commensurate with the job they do, pay more on the order of sports stars!

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    1. This crisis has made it abundantly clear how much we need (and undervalue) health care workers. That includes doctors, nurses, EMT crews, the cleaning and sanitation people who keep the hospitals safe, even the front desk people who have to deal face-to-face with people in distress.

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  2. Your thoughts on reopening seem about right but we'll only know with hindsight how it will really go. Hopefully things will proceed in a controlled and safe manner to minimize any spikes in this disease. One thing for sure we are nowhere near "herd immunity" if such an immunity actually exists, that is still an unknown.

    For us so far are fine on the financial side. Perhaps not as good as before all this happened but not so bad that it will affect our day to day life. The successfully retired types among us with a paid off house, no or low debt, and retirement savings should be able to weather a pandemic economic slowdown. My worry is about those working in retirement to make ends meet or in the early stages of their careers.

    I always did think that "working longer" as a retirement solution was a pipe dream. You may be able to find work in your late 60s or 70s but personally I don't think it's something you can count on. Now jobs are going to hard to find plus those most affected by the virus are us older people and we should be limiting interactions for our own safety.

    For younger people we all know that the early years of buying a house, raising a family, saving for the kids education and our own retirements all at the same time means there's usually very little wiggle room in the budget. Job loss or a reduction in pay will push many, or even most, into a tough financial spot and it's those early years that sets the pattern for what follows.

    We will of course eventually recover, we always do, but as you say Bob it's not going to be easy for a lot of people.

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    1. My youngest daughter is being hit very hard. She may have to go upwards of a year with virtually no income from her job field. Filing for unemployment has been a nightmare and she is yet to get any kind of coverage. Her savings will run out before the end of the year.

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    2. One of our daughters in the same boat. She is a qualified Early Childhood Educator but of course all the schools and child care centres are closed so there is no work at all for her. The federal government here in Canada has been good about providing most everyone that is not working due to the pandemic with an emergency benefit of $2,000 a month. It's not a lot but enough for our daughter to get by on for the time being. From what I've heard I understand it's easy to apply for and the money arrives quickly. It is seperate from the regular unemployment system and anyone that applied for unemployment due to the pandemic was automatically rolled into this program (you can't receive both). It's perhaps not the best system in the world, there may be payments that need to be clawed back, but as the government put it.. "In this emergency lets not allow perfect to get in the way of good". How good we'll have to see when there is a review at some point after the pandemic emergency has passed.

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  3. I would like to see the recycling centers to open up in the first wave. They've been closed since the middle of March. Even bottle and cans returns have been suspended. From my own selfish needs I'm glad our heavy construction can start back up May 6th.

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    1. Our city continues with regular recycling and trash pickup, so I hadn't even thought of that complication to daily life. Now that you mention it, i think the bulk recycling drop off sites for bigger items are closed.

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  4. I’ve also been pondering what the next few years are gonna look like. I feel a sadness to think of the families who will lose homes,jobs, and have to rebuild from scratch..I see a Depression not a recession, but I suppose it’s just a matter of semantics.I think maybe a lot of families will begin sharing housing again like when our aunts uncles and grandparents lived with us,way back when. We also have no mortgage, and since 2004, have not been in the stock market much so we’ve gotten used to poor returns on retirement investments, and have had to change our lifestyle accordingly, (we thought we’d be getting 5-7 % on our bonds,but they all got called or non renewable..) but that’s not been awfully hard, as we are frugal by nature.So I expect to weather this ok.. my health would be my biggest concern. I have already learned some things: I dont miss eating in restaurants.I have learned to cook all my favorite meals, Korean ribs, Greek Salads,meatloaf and mashed potatoes,bbq chicken,Last night I made Shawarma chicken on the grill.I have found that spending a few more dollars on groceries is WAAAAY cheaper than buying ready made food at a restaurant .ANd I enjoy the hobby of cooking. I don’t know when I will feel comfortable getting in a place or going to an airport, and a ballgame at Chase Stadium is a long ways off, for me.. maybe in time our fear will burn off as we get antsy for “normal” life but I’m not there yet ! I expect society to change a lot.. and I am sorry and sad for the young people starting out and families in the midst of all the expensive years of raising kids, hoping for a trip to Disneyland, ,etc.. Somehow,I will focus on believing we all have more resilience that we know, until we are tested. We will all have to help each other out in the times ahead.

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    1. I have gained 5 pounds just looking at all your Facebook posts about food. You have rediscovered a real joy and passion. I trust Ken is still running or biking to keep his trim look.

      Going back to places with crowds will feel a little weird and unsettling, for at least the next few years. We receieved ticket credits for next year at Hale Theater and Phoenix Symphony performances but they may go unclaimed. Likewise, my tickets for opening weekend at Chase Field are likely to be lost. Word is that baseball may come back in July. but with no fans.

      Betty and I have found this experience reconfirms our basic lifestyle choices: homebodies, simple pleasures, seeing home as a sanctuary, and seeing most food as fuel, not entertainment.

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  5. I am quite confident that we will recover. The economy spends significantly more time going up than down. What it means for retirees is an interesting issue. We were already going to face issues going forward due to massive debt before C19. The timetable just got moved up. Pensions and annuities just got riskier. Interest on CD's probably will not return anytime soon. These issues will drive many of us into riskier investments. Taxes are going up for everyone. Our best source of income will always be social security. This will continue. Fixing this program should be the top of the list for everyone. I would not favor lowering future retirees benefits by 30% to support existing retirees. If they cannot get the same benefits we do everyone should take the same hit.
    Fixing our health care system should be the next goal. We spend twice what any other country does. That pretty much eliminates the idea of increasing the incomes of the health care workers that are bailing us out now.
    We will recover. We will also continue on the path we have seen for over 30 years. Increased transfer of financial risk to the individual.

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    1. No doubt the economy will recover; the issue that will affect us all is the timing. The WH says, July. Business leaders hope for mid 2021. Economists say 2022. The CEO of Southwest Airlines says 2025 for his industry. Roll the dice and take your best guess.

      Your last point about the trend over the last several decades of the transfer of risk to the individual is interesting. I think it is quite possible that this episode will reverse that trend, at least for a period of time. The federal government very well might become more than the choice of last resort for health care, a guaranteed wage floor, and disaster preparation. Of course, a lot depends on whether Mr. Trump vacates the White House. Mr. Biden would have a very different view of government's role and responsibilities.

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  6. Bob, Sounds like your prediction of the future is lined with gloom and doom. I am sad to see that. I see a bright future for most everyone. The states are starting to reopen. Texas started today. We drive past several restaurants that had parking lots with actual dining in patrons. We are limited the first 2 weeks of May to 25% occupancy. All businesses were allowed to reopen today with similar guidelines that restaurants have except for salons, bars, sporting venues, and gyms. Those will likely open in 2 weeks and the 50% occupancy mark will be allowed. The fundamentals for a strong economy are still in place, albeit paused for a bit. I see a roaring economy waiting to reappear as restrictions lift. Will we lose some businesses due to the massive shutdown, you bet but others will come in and take their place. American creativity and drive will be seen in ways that we have not seen since WW2. Will we have foreclosures? You bet. Will housing markets crash? Some will that were already over priced but others will not. The national migration away from high tax states to lower tax and sunbelt states will intensify as these lower cost states are very business friendly and general have much lower cost of living including housing costs. Will there be some lasting changes from this shutdown? You bet but I suspect they will be minimal in nature and more focused on helping highly at risk people mitigate those risks while in the general public. I see a bright future for us all, and as is stated in the bible I read, "This too shall pass". Peace and love to everyone out there and God bless America!

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    1. With over 1,000 virus deaths per day still occuring the risks of opening up, even in the limited way you reference, is tremendously high. I understand people want to get on with things, but starting a new wave of infections is a distinct possibility.

      I applaud your optimism. I will be very surprised (and happy) if things turn around that quickly. The majority of Americans have a heightened sense of fear of being close to others. That is not going to lessen for some time. Businesses may start to reopen, but shoppers will not return quickly. 60,000 dead as of today will keep most of us very cautious through the summer and well into the fall.

      Again, though, I will say that I would love it if you are proven right and the country can reopen without a new wave of the virus killing thousands more of us.

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  7. Because I was writing for the financial markets during the last recession, I thought I knew ahead of time what was happening. I wouldn't advise it for everyone, but I went strictly to cash during that period and reinvested again early in the summer of 2009. (I'd tried earlier, but the 401Ks wouldn't let me do what I wanted to do.) Time spent when I couldn't complete sentences without horrific pain, when I needed anti-seizure drugs and had two brain surgeries have come between then and now, however, and I have long since turned our funds over to people we trust. I'd been itching to go to cash again, since we don't have time to wait until our funds rebound after a strong dip, but I made the decision once that I didn't want to be responsible for handling our funds, and I stuck to what I'd decided. Now, I'm asking myself, why did I do that? But, like you, we own our house, we have no debts, and we have all we need for today, my mantra. All that worries me is whether our probably decreased funds make our children's decisions more difficult as we continue to age. Will they feel it necessary to take us in, something I've told them I do not want for them? (Chronic illnesses made it impossible for us to get long-term care insurance.)

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    1. Our decisions are ultimately centered on not putting our kids in position of having to care for us. My eldest daughter and son in law are likely to have to provide serious care for his parents. We will not double their burden, or ask our youngest to give up her life for our care.

      With the house fully paid for, no debt, and a healthy amount of investments, the only real question for us centers around the possibility that one or both children might require some financial support for the next year or so until the economy is working at something close to normal.

      Even though both would do so at the drop of a hat, we will not put them into a caregiver situation. We feel blessed that we can proceed under that understanding.

      I feel for you and hope for the outcome you want.

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  8. It's my hope that EVERYTHING opens, and STAYS open - flu or no flu - hairdressers, restaurants, pools...the whole bit. Young people need to work, get promotions (instead of paltry uc checks) and be able to save - so that down the road, they too can play golf and join hoity-toity garden clubs. As for the virus, nobody is forcing anyone to stand in theater (or wally-world) lines. i absolutely detest the way our young people are being economically persecuted - it's just evil, wicked and rotten the way young lives (which also matter) are being systematically invalidated.

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