May 15--What will be the shape of the future: V, W, U, L, or a swoosh?
This is shorthand for the direction of the economic recovery. V is a big fall but quick bounce-back to expansion. W indicates a double-dip recession -- that might happen if another wave of the pandemic hits -- while U signals a steep drop and a harder recovery. A deep dive and a long stay in contraction/depression is L.
And swoosh? According to The Wall Street Journal, "Named after the Nike logo, it predicts a large drop followed by a painfully slow recovery, with many Western economies, including the U.S. and Europe, not back to 2019 levels of output until late next year -- or beyond."
Sorry, but no one anticipates an Amazon Smile trajectory.
But the experts may be getting ahead of themselves. As a society and an economy, we're hardly at the whiteboard yet, much less drawing letters or shapes. The shutdown to battle the public-health emergency of COVID-19 was carried out quickly and effectively.
But industries, companies and consumer behavior won't respond so snappily to executive orders about reopening, whether coming quickly in some states or at a much more measured pace in Washington, California and others.
President Donald Trump is pushing for a quick reopening of the economy. His chief pandemic adviser, Dr. Anthony Fauci, strongly warned a Senate panel against doing that.
As a result of the shutdown, national unemployment jumped from a 50-year low in the opening months of the year to 14.7% in April, the highest level since modern record-keeping began in 1948.
Treasury Secretary Steven Mnuchin said it could reach 20% this month.
The U-6 jobless rate, which includes workers not actively looking for a job and part-timers who want full-time work, shot up to nearly 23% in April.
Even with trillions in federal spending, little evidence indicates a quick return of an up cycle -- the W or V scenarios. Key industries such as airlines, hotels and restaurants, remain in trouble of historic proportions. An estimated 100,000 small businesses have closed forever nationwide as a direct result of the pandemic.
My colleague Paul Roberts reported that Amazon's move to allow engineers and other staff to work from home until at least early October will badly wound downtown, the biggest economic engine of the city. But the policy is not limited to Amazon, nor the damage to downtown.
This metropolitan area enjoys a heavy concentration of tech workers and other elite jobs that easily allow people to work from home for an extended period.
But many more sectors -- hotels, sit-down restaurants, brick-and-mortar retail, construction, manufacturing -- can't. Vendors that depend on the tech giants also can't necessarily work from home. The convention and tourism businesses have been decimated.
And good luck to professional service firms attempting to bring in new clients via Zoom or Webex, or at a social-distancing restaurant limited to half capacity (if it can remain profitable with that limitation) wearing masks. Can the next generation of Seattle's outstanding firms that had been incubating before the pandemic emerge in this environment?
Workers have returned at Boeing, but orders are being canceled or postponed, most immediately for the troubled 737 MAX, and Chief Executive Dave Calhoun warns of layoffs and damage to the airline industry that could last for years.
People frightened by the pandemic are changing their behavior, too. A Harris Poll early this month showed 49% of respondents willing to return to their workplace immediately or within a month of stay-home orders being lifted. That compares with 63% on March 30.
Another poll had 49% of respondents more likely to shop online because of COVID-19 rather than go out. People with limited income or worries about retirement will be less likely to spend. Consumer spending represents 70% of the economy.
All this and more promises to be a sustained drag on the economy until a vaccine is developed, which might realistically take a year or two. By then tremendous damage will have been done.
Economists Victoria Gregory, Guido Menzio and David G. Wiczer put together a model to examine the effect on jobs from the pandemic recession, finding that "even a 3-month long lockdown is going to have long-lasting negative effects on unemployment."
And that's their best-case scenario.
Meanwhile, antagonism between the United States and China is growing, not least because of Beijing's lack of transparency over the pandemic's origins and spread. But this builds on a wider set of flashpoints, including the trade war and China's assertiveness in the South and East China seas.
Decoupling the world's two largest economies is no longer a theory but an emerging reality.
Reshoring factories to the United States sounds wonderful, but it will take years and cause enormous disruption. Even with heavily automated new U.S. factories employing fewer people than their pre-2000 predecessors, are Americans ready to pay more for domestically produced goods?
China held more than $1 trillion in Treasury debt as of January. To tweak an old joke, if we owe them $100 and won't pay, that's our problem, but if we owe them $1 trillion and won't pay -- as Sen. Lindsey Graham suggested -- that's their problem.
But it's not that simple. China, although suffering much pain, could potentially wreck Treasurys as the world's safest investment and wound the dollar as the world's reserve currency. This would bring on a world depression with no end in sight. A big boldface L.
For future historians, such a geopolitical blunder into cold or hot war would contain a footnote that China was Washington state's biggest export customer.
Brightsiders predict that Seattle is among the cities most likely to emerge quickly and in the best shape to come back from the pandemic recession.
I hope this is right. But whatever letter or logo represents the ride ahead, all will not be OK.
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