Part 1
No one on Wall Street predicted a pandemic. But Bill Gates did. At a TED talk in 2015, Gates told attendees that while Ebola was contained, “next time we may not be so lucky.” He said, “NATO plays war games to check that people are well trained and prepared. Now we need germ games.”
The COVID-19 pandemic led to lockdowns in China, the U.S., and then globally. Amazingly, the recovery in America, Europe and Asia has been much stronger than anyone predicted. The financial markets have been rallying since spring. The Dow Jones Industrial Average is now up about 60% from its March lows. The uptick in the Dow was believed to stem from speculation over a future vaccine. That speculation is—so far—working out with recent announcements by Pfizer, Moderna and AstraZeneca of trials showing high rates of effectiveness.
The Harvard Business Review had a recent article titled, “Why the Global Economy Is Recovering Faster Than Expected.” HBR broke down three sectors of the U.S. economy that were impacted very differently. The following were unaffected by the virus: food off-premises, housing, utilities, financial services and nondurables like paper towels. Other sectors, like recreational goods, autos, clothing, durable goods and household equipment were negatively affected, but bounced back quickly. Unfortunately, sectors like restaurants, hospitality, airlines and travel, and public transportation are not so lucky and will need a vaccine before they see any signs of rebounding. Most importantly, the nature of the recession did not come from a financial crisis or an investment meltdown, which have structural overhangs that generally take a long time to address.
Some industries are doing well. Amazon plans to hire 100,000 more workers in the U.S. and Canada. Amazon had already added 175,000 more warehouse workers in March. Fidelity’s hiring is up 40% for this year, and residential real estate brokers and real estate service companies are having a boon as residential home mortgage rates are now below 3%.
What kind of a recession and recovery are we in, and will it last? Economists use letter shapes, such as V, U W, K and L, to describe recession and the recovery patterns.
While we may be in new territory for recessions and recoveries, here are three of the most likely possibilities. The V-shaped recession, what President Trump had been touting, describes the economy suffering a sharp decline, bottoming out, followed by a strong recovery. In a W-shaped recession, also known as a double dip, the economy falls sharply, starts to recover rapidly and then falls into a decline. The K-shaped recession and recovery is a two-track process in which some of the population experiences a V-shaped recovery while others experience a much more difficult time. A good example would be a software programmer and an airline steward. It may take much longer, even after the virus, for the airline industry to recover. The first quarter of 2021 should give us a better indication of where we are going.
Part 2 will address economic policy, the result of the Senate election runoff in Georgia and its impact on the recession and recovery.
Michael Stone is the director of MBA and MPA programs at LIU Hudson and the developer of LIU Hudson’s MBA Online/Sunday Program. Stone may be reached at 914-831-2711 or [email protected].
