May 1, 2020

Measures taken by government officials to slow the spread of the corona virus have put the economy into a policy-induced coma.  Second quarter GDP is expected to contract by a record-shattering 20-50%.  But $2.5 trillion of fiscal stimulus checks will propel third quarter GDP to an equally astonishing growth rate of 20-50%.  Government got us into this mess.  Government will get us out.  But what happens to the economy in the fourth quarter and beyond?  Pessimists invariably find something to worry about.  Optimists believe that science, business, and government will work together to produce a vastly different – but vibrant — U.S. economy.  We choose to be one of the optimists.

Given the likely GDP drop in the second quarter it is easy to be a pessimist.  We have never experienced anything like this.  Many worry that the states are trying to re-open for business too quickly and the virus will reassert itself in the fall.  But businesses have to re-open.  Now.  Already 30 million American workers — 20% of the labor force — have lost their job in six weeks.  If the shutdown continues for another month that number is sure to double. People need jobs.  They need to feed their families and pay their rent.  There have already been riots in Utah, Oregon, Michigan and Minnesota as citizens beg city officials to responsibly re-open.  That path will look different for each state.  New York is not Nevada.  If the virus reasserts itself, medical research firms will have had an additional six months to develop a vaccine and/or a cure.

Many workers currently receiving unemployment benefits make more being unemployed than they made while working.  Some fear they will turn down offers to return to their original job until those enhanced unemployment benefits expire at the end of July.  But that will be too late.  If that happens many more businesses will fail.  This policy has to change.  S.C. Governor McMaster has suggested that businesses report individuals who refuse to return to work to his office and he will investigate.  Given this, we suspect many currently unemployed workers will choose to return to work quickly if given the opportunity.

It is easy to find plenty to worry about – reopening too soon, richly rewarded unemployed workers, too much federal debt, heavily indebted state and local governments, farmers, hospitals.  We are in uncharted territory.  But there is another side to the story.  The economy has changed dramatically in a matter of weeks and will continue to re-adjust in the months ahead.

For example, a vaccine typically takes years to develop and test. That will not be the case this time.  The big pharmaceutical companies are working together.  They are scouring medical libraries to identify potential treatments.  They are dedicating their top scientists to speed the development of a vaccine.  They are sharing information from clinical tests.  They are expanding their manufacturing capabilities to quickly ramp up production once a successful medicine or vaccine becomes available. As we understand it, some 254 therapies and 95 different vaccines are already in various stages of development.   Researchers at Oxford announced that their vaccine could be ready for emergency use to vaccinate doctors, nurses, and other essential workers by September.  Even the normally pessimistic Dr. Fauci says it is do-able to have millions of doses of a vaccine available by January.  A process that typically takes years has been compressed into one year.

People always focus on industries that will be hit hard by the second quarter drop in this economic downturn.  Brick and mortar retail stores are at the top of that list.  Many leisure activities like movie theaters are next.

But many on-line shopping businesses have been swamped with new orders because in-store shopping has not been possible.  Amazon and Walmart are hiring thousands of workers.

Many businesses encourage their employees to work from home.  To do so effectively they need upgraded equipment – faster computers, better monitors, upgraded networking equipment.  Corporate travel budgets have been slashed and office attendance has been curtailed by social-distancing so video-conferencing has taken off.  Zoom has been overwhelmed.

As we sit idly at home, restaurant home delivery and take-out have become desirable dinner options.

To fill time we stream the latest movies from Netflix, HBO, Hulu, or Amazon Prime Video.  Or we play video games.  With gyms closed Peloton and NordicTrack enable us to stay fit.

Big tech firms like Apple, Amazon, Google, and Facebook have all come under pressure in recent years for how they handle and secure the data they collect.  But those security concerns have gone out the window for now.  The federal government needs their help to develop tracking apps that warn us when we approach a person that has been infected with the corona virus.

The firms that will be successful in the months ahead will be those that are able to adapt to change quickly.  For example, in the Charleston area there is a manufacturer of lightweight summer apparel which changed on a dime and within two weeks re-tooled its machines to produce face and neck gaiters – and they are selling out.  A defense contractor has reprogrammed its commercial 3-D printers to produce face shields for health care workers to supplement its core defense contracting business.  To counter expected social distancing requirements a restaurant plans to incorporate its little-used event space for additional restaurant seating and continue its recently developed lunch and dinner take-out service.

These stories are indicative of the American spirit.  The combination of entrepreneurship, faster computer speeds, and artificial intelligence are going to produce record high levels for both the stock market and the economy in 2021.  Tech will pave the way.  Do not underestimate it.

Stephen Slifer


Charleston, S.C.