Just thought a good add-on to JSJ's post about the potential impact on Sports.:
Why Business Won’t Snap Back So Easily After the Great Reopening
By Lisa Beilfuss
Updated April 17, 2020 8:51 pm ET / Original April 17, 2020 7:30 pm ET
Barbers, hair stylists, and cosmetologists are in the most contact-intensive industry. Here, Haircrafters Barber Shop in New York on a recent day.
Photograph by Brittainy Newman/The New York Times/Redux
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The great reopening of the U.S. economy is at hand. Now it’s important to get it right, or it could be the prelude to a bigger and more economically devastating closing.
Thursday brought perhaps the best news in weeks on the battle against the coronavirus pandemic, with President Trump unveiling a three-phase state-driven strategy to reopen America to commerce, and companies like Gilead Sciences (ticker: GILD) reportedly seeing progress on the treatment front. What’s more, some of the hardest-hit areas like New York believe they have seen a peak in the number of new cases, and states around the country are banding together by region to plan coordinated reopenings.
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For their part, investors have been buying into the reopening hype. The S&P 500 index, already up 28% after its bear-market low on March 23, leapt 2.7% on Friday to 2875 on the reopening prospects and hopes for a cure.
The urge to reopen the economy, particularly in light of the staggering number of job losses and probably a double-digit decline in second-quarter gross domestic product , is understandable. But a rush to get back life back to normal raises the risks of a relapse—and setting the recovery back even further. If confidence isn’t restored, consumers may refrain from spending even after the all-clear is finally given—particularly the older Americans who are most vulnerable to Covid-19. For perspective, Americans over 55 account for 40% of consumer spending, said Torsten Sløk, chief economist at Deutsche Bank Securities.
High-Contact Occupations
Occupation Proximity Index Percent of U.S. Workforce
Barbers, Hairstylists & Cosmetologists 92.17 0.87
Occupational & Physical Therapy Assistants & Aides 90.5 0.08
Home Health & Personal Care Aides 90.25 1.28
Therapists, Veterinarians, Nurses & Midwives 88.09 3.22
Supervisors of Food Preparation & Serving Workers 88 0.67
Health Care Diagnosing or Treating Practitioners 86.19 1.22
Supervisors of Personal Care & Service Workers 84.5 0.09
Health Technologists & Technicians 82.73 2.06
Pilots, Air Traffic Controllers & Flight Attendants 81.6 0.22
Other Health Care Support Occupations 80.2 0.91
Preschool, Elementary, Middle, Secondary & Special Education Teachers 79.54 3.80
Other Teachers & Instructors 79 0.51
Motor Vehicle Operators 75.56 3.24
Other Personal Care & Service Workers 75.5 1.96
Food & Beverage Serving Workers 75.17 1.48
Source: St. Louis Fed
Economists at Goldman Sachs say their U.S. Lockdown Index, a measure of the GDP-weighted share of the country that has enforced varying stay-home orders, has risen to 86%. A quarter of small businesses across the country were already closed at the beginning of April, with many more shutting since then. More than a fifth of the American workforce is employed in 15 of the highest-contact industries—or some 27.3 million people who earn nearly $1.3 trillion annually.
“Because of the risk of renewed virus spread, the public will have to be persuaded that any plan for partial reopening is safe,” said David Choi and David Mericle, economists at Goldman. After all, they added, “most of the increase in social distancing in the U.S. has been a voluntary reaction to virus fears, not a response to government lockdown orders.”
While the onus around lifting lockdown orders will fall to state governors, some of the burden in keeping consumers safe will rest on businesses themselves.
In Montgomery, Ala., David Lamb has flipped his dine-in Frutta Bowl restaurant to a curbside business, a shift he doesn’t expect to fully reverse once Gov. Kay Ivey begins to ease lockdown restrictions. Recently, business has improved, he said, to about 50% of previrus sales from 25% two weeks ago.
“This area is strongly pro-Trump. People really pay attention to what he says, and his message seems like it has been a little more hopeful,” Lamb said. “I can tell from people’s behavior that they are not worried.”
Lamb, though, is worried. Even when restaurants are again able to seat diners, he says he plans to continue operating in restricted ways longer than he needs to. “Even if the green light is given today, it’s too soon. I have to look out for my employees and my customers,” he said.
Social distancing is likely to weigh on restaurant traffic until there is a vaccine or treatment for the new coronavirus.
Photograph by Justin Sullivan/Getty Images
For many businesses, there’s no such thing as remote work or curbside service. Of the most contact-intensive occupations, according to analysis by the Federal Reserve Bank of St. Louis, barbers, hair stylists, and cosmetologists top the list. According to market data firm Statista, hair, skin, and nail salons in the U.S. generated roughly $5.24 billion in total revenue in 2018.
Sara Turack, owner of a 12-chair salon in Omaha, Neb., said she is planning for her salon’s stylists to treat customers like hospital patients when the business reopens, using protective gear and staggering appointments. “We’re right up there in someone’s personal space,” she said, adding that a lot of stylists are questioning whether they should even stay in the industry after the pandemic. “I’m hopeful that my stylists come back,” she said, “but I can’t be sure.”
While Turack expects some pent-up demand from customer, as people are able to get their hair cut and colored again, she thinks some changes will be permanent. Some people have already gotten used to doing their hair themselves, she said, and that’s not to mention how mass job losses across the country may affect demand for things like salon services. “We all have to wonder, will the economic impact come later?” she said.
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The impact, of course, goes well beyond small businesses. There are similar concerns for companies across the travel sector. How, for example, can airlines keep customers and staff safe in confined cabin space?
Doug Parker, CEO of American Airlines (ticker: AAL), said in a video message on Wednesday that the company would change seating policies and reduce on-board food and beverages to limit service contact. In particular, Parker said that American would block 50% of standard middle seats on board, and would give flight crew authority to reassign seats to improve distance between passengers.
While measures like those could help customers feel more comfortable about air travel, it’s not clear how sustainable such efforts could be for the longer term. “Airlines aren’t designed to run at half-capacity,” said David Lefkowitz, an equity strategist at UBS Global Wealth Management. And when it comes to staying in a hotel, you can’t be sure who stayed there before you. “There are a lot of questions around how practical this all is,” he said. “This will weigh on people’s thinking.”
The same is true for many restaurants. While takeout and delivery services have been a lifeline for restaurants large and small during the pandemic, for many it’s not enough to cover overhead for an extended period, should consumers continue to stay away. Brinker International (EAT), owner of the Chili’s and Maggiano’s chains, said on April 2 that virtually all of its restaurants remain open for to-go orders, and off-premise sales have more than doubled from a year earlier. Still, that amounts to only 30% to 35% of prior-year sales, Brinker said.
“The margins are so thin to begin with, and real estate is such a big part of the cost. It’s not clear you can make a profit” when running at partial capacity, Lefkowitz said. He points to China, where in Wuhan, the origin of the new coronavirus, most businesses have resumed operations. Yet restaurant activity is still down around 50%, he said.
Some restaurant businesses already lend themselves to a world that is grappling with the disease and to an economy that will no doubt look different once there is a vaccination. Fast-food chains are well positioned, Lefkowitz said, since customers often get their meals to go. There’s Starbucks (SBUX), for example, which was already expanding drive-through service and encouraging customers to order ahead through its app before the virus hit.
“Even if the green light is given today, it’s too soon. I have to look out for my employees and my customers. ”
— David Lamb, Alabama restaurateur
Given so much uncertainty around how long the virus will linger, how quickly a vaccine will come and how effective it will be, and how the trauma will affect consumer behavior in the months and years to come, Lefkowitz says that he is advising UBS clients to maintain a defensive tilt in their portfolios. That means overweight health-care and communications-services holdings and some caution around discretionary sectors.
“The market is pricing in a fairly linear recovery over the next three to nine months,” he said, “but it’s likely to be more start-stop with progress and setbacks along the way.” The market expects the economy to be back to normal by 2021, but that doesn’t leave much of a margin of safety, given the uncertainty, he said.
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Some analysts have tried to map out reopen scenarios. Deloitte Consulting and Salesforce.com came up with four, though their unwillingness to assign probabilities speaks to the inability to predict what happens next. On the brightest end of the spectrum, the analysts think it’s possible that the virus could pass without a second wave, allowing the economy to begin rebounding later this year as confidence slowly returns. At the other end is a new world of lone wolves, where rolling waves of the disease continue to rock the globe for longer than anyone was prepared for, creating widespread social unrest, leading to increased isolationism and growing government surveillance.
As is often the case, the reality of what’s to come probably lies somewhere in the middle of this rose-colored-to-dystopian spectrum. The virus will continue to spread, and new waves will probably emerge, but consumers will resume some activities, and businesses will adapt. Those that take precautions will be better off, and so too will the U.S. economy if officials, customers, and business owners accept that attempting to resume normalcy too soon will only do more economic damage.
