Our Economy Is Only In Stage 2 Of A 3 Stage Recovery

The global economic downturn that has resulted from the coronavirus pandemic is unlike any we have seen before. The initial damage was sudden. For example, in the United States, the employment numbers went from good to horrible in the blink of an eye. However, the recovery will take longer. It is a three-stage recovery, and signs are we are somewhere in stage two.

Around the world, shuttered small businesses suffered first. Next to be hit were businesses that relied on travel and large gatherings (like resorts, cruise lines and theaters). Now, the economy as a whole is suffering, and we don’t know just how far the damage will spread.

Oil and energy prices were not spared in the downturn and their recovery is following a similar three-stage path. Prices—along with demand—tumbled in the first two months of the lockdowns. and have recovered somewhat as economies have re-opened. However, demand for gasoline, jetful, diesel and other oil products is not seeing consistent growth and electricity demand remains depressed as well. For oil and energy prices, the rocky economic recovery means means continued volatility and uncertainty.

There are three steps to recover from this unique recession.

6. Recovery from the legal lockdowns and closures
7. Recovery from fear of the virus
8. Recovery from the economic damage.

Most jurisdictions globally have ended the lockdowns and restrictions. In the U.S., states and municipalities differ on their restrictions. There has been some talk over recent weeks in the U.S. and some other places like India of re-imposing restrictions . However, Americans are now free to go outside now, even if they are not all free to sit inside of a restaurant and eat dinner with friends. Europe and other places are generally closer to fully open.

Yet, the legal restrictions are not the only leash on economic activity. We—particularly Americans—are scared, and that limits economic activity significantly. In fact, there is growing evidence that fear of the virus has a greater impact on economic inactivity than the state-imposed lockdowns.

Travel will be limited. This in part because of state-imposed quarantine rules, but also because people don’t want to sit on airplanes, stay in hotels and generally interact with strangers. To understand the fear aspect, look at big, prominent American enterprises. In academia, schools like Princeton and Harvard will be going mostly or almost all to online education. This is not based on any state restrictions but based on internal decisions. Other schools, like Cornell, will open but not quite as normal. The economic impact of this may not be immediately measurable in sales and commerce data, but we can see the impact of it on gasoline consumption which has risen but still remains stubbornly below typical rates for the summer.

The NBA will finish its season and playoffs beginning at the end of this month. The league will play all of those games under a virtual “bubble” at Disney World in Orlando. Only tested personnel can enter the “bubble.” It makes sense to be in Florida, because the states where some teams normally play would forbid large sports gatherings. However, Florida is mostly open, and the NBA has still decided to limit attendance at these games severely.

We are a long way from recovering from fear and that means we are a long way from a full economic recovery. Once we overcome the fear aspect, we will still have to rebuild from the economic damage. We are only in stage two of the three-stage recovery.
Source: Forbes