American Consequences - May 2020


ahead. How much will demand come back once these sectors of the economy open up? What companies will be able to adjust to the new work environment requirements? Which industries are changed or done forever? If massive office buildings in midtown Manhattan require desks to be socially distanced, the implications for the commercial real estate industry could be extreme. If restaurants require staff to wear face masks and guests to be at least six feet apart, those cozy neighborhood Italian joints with diners pressed shoulder-to-shoulder could go the way of drive-in movies (which may, paradoxically, make a comeback). This country is about to get a very difficult economic lesson in resilience and adaptation. Just because businesses open doesn’t mean they’ll have enough customers to stay that way. Service economy jobs that seemed steady could go away for months, or even years. Concert venues and Broadway theaters are in for a rough ride ahead. The Trump administration’s reopening guidance establishes “phases” for the individual states to return to economic normalcy. Even if they all take big steps toward reopenings in phase 1 now, it will be weeks before we know the full extent of the damage done to businesses, and months before we know whether we can really turn this economy around without suffering massive and lingering economic pain. It’s not going to be easy... The good news is, America has finally realized we don’t have a choice.

manufacturing and retail will be a much- needed relief to employees and business owners who have been suffering. The level and speed with which these and other businesses come back, however, is going to lead to a lot of frustration and disappointment for weeks, if not months, to come. We are heading for a “swoosh” recovery now at best, as the Wall Street Journal calls it, not a “V-shaped” one. Texas, for example, is leading the way among states... with many businesses allowed to open as of late April. They are at such diminished capacity – 25% occupancy for restaurants, for example – that they’re no longer profitable enterprises (or even close to it). They also have far fewer customers because of virus- exposure fears. It’s going to be the same story for small businesses across the country. I spoke with a friend earlier this week who owns a gun range and a BBQ restaurant in Memphis, Tennessee. He said that his margins in good times were only in the 6% to 8% profit range, and now he is only allowed to have 25% of his customers in the restaurant at any time. Even with the increased demand for delivery and takeout, there’s simply no way that he can run his business like this for long. The model doesn’t work. These are just some of the huge variables Just because businesses open doesn’t mean they’ll have enough customers to stay that way.


April 2020

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