Before the China Virus, the United States had the best economy in its history — since 1776 — and the strongest economy in the world. Then came the pandemic and we made some bad decisions. Economic growth declined — it contracted it — and the economy was essentially in TIME OUT.
Now we sit 15 months later with a myriad of vaccines and a steady shuffle toward herd immunity.
The whole Operation Warp Speed is a colossal success story that needs to be told. It is America at its best. Bravo and well played.
So, Big Red Car, what is the economy doing?
Here are the talking points:
1. Small businesses have been devastated, but not nearly to the extent that the fearmongers want us to believe. We are going to find out that small business is very resilient.
Certain business sectors were clobbered — airlines, hotels as an example.
2. Restaurants have been clobbered and in large urban areas wherein rent, utilities, insurance are major elements on the expense statement, they cannot recover.
Part of their failure to recover is the reluctance of Americans to return to pre-pandemic levels of eating out.
There were some marginal restaurants out there and they cannot succeed. It is a harsh part of the creative destruction of capitalism.
3. The first stimulus PPP-type programs had a positive impact. They could not save a highly leveraged small business, but they did a lot of good. Later programs were not and are not as effective. The later programs are just pork.
We are going to see a Post Pandemic Explosion and a Dead Cat Bounce.
Post Pandemic Explosion
As the general quarantine ends, as pent-up social energy is released, as the Indians leave the reservation (totally racist comment, sorry), as America goes back to work in the workplace, the pendulum of activity will swing way too far to the left. We will have a level of hyper activity.
People will feel like they got out of jail and eat out more, drink more, go to events that were once the forbidden fruit. They will dress up — which means anything other than sweats, admit it.
Weddings delayed will happen. Graduations will be held again. We are going to get back to a high to very high to insane level of travel.
Since a significant amount of capacity has been destroyed, the remaining establishments (think restaurants as an example) will do better as competition is diminished.
Big companies that have prudently curtailed hiring in 2020 will over hire as they open the floodgates with the workplace being open again. They will be hiring for two years of growth in a very short period of time. It will again be difficult to find good workers and wages will go up.
I predict that Work From Home will still be a thing, but it will not be THE thing. Workers like that social aspect of the water cooler. Companies have to build effective teams. That all requires more face-to-face. So, WFH will happen, just less. The workplace will blossom again.
I predict we will see GDP growth in the 8-10% range — yes, I know, that is 2-4% more than economists are currently predicting. This will be coupled with decreasing unemployment, dramatically declining job losses from existing businesses, and more job shifting.
A word about job shifting — because of WFH, many employees find themselves with a greater freedom to consider jobs they would never have before. Before the pandemic, could you have moved from New York to Austin? Maybe not.
With WFH and a new found degradation of NYC (the place is a shithole a pal said) and the hot as a pistol ATX, this worker is a mobile worker even if he/she/favorite pronoun is still WFH, but in ATX. Think about that for a second.
Our work force has become very mobile. People are going to WFH from the beach, the mountains, in a RV at a national park.
Dead Count Bounce
When any system comes crashing down, it hits the ground and bounces. This is a DCB.
We are going to experience a DCB — as noted above when speaking of the Post Pandemic Explosion — of gargantuan proportions.
We will experience a return of the joie-de-vivre that is the essence of life. Admit it — you are looking forward to Thanksgiving dinner at your in-laws and you are going to squeeze out that second week at the beach or skiing. Admit it.
All of this is going to drive the economy in small ripples that will become big waves. You will meet people for coffee three times a week rather than once. Multiplied by all the coffee drinkers in the US — well, you see where this is going.
Uhhh, got any data, Big Red Car?
Yes, amigo — a million new jobs in March, unemployment down to 6%, retail spending (jailbreak, revenge spending) up more than 10%, record bank earnings, stock market blowing through 34K (NYSE), air travel up, hotel bookings up, hotels full on the road.
Just like with the China Virus, you are going to want to look at things from a state-by-state perspective. Texas/Florida are doing fine and maybe other states are not. You must be discerning.
This, of course, was true during the pre-pandemic, best ever economy also. No change.
What can derail this, Big Red Car?
The answer is always the same, amigos, bad policy.
Here are the things I worry about:
1. Bad energy policy — like making war on fossil fuels, cancelling substantial energy infrastructure projects (talking to you, Keystone XL Pipeline).
Price of gas on last pre-inauguration road trip $1.52/gal Sams Club, Tuscaloosa. Price most recent trip $2.62/gal.
There is a supply v demand element at work here as travelers return to the Interstates, but, come on, man.
Energy prices are a general tax on everything. When gas goes up, everything you buy goes up with it.
2. Bad foreign policy — we are looking at potential confrontations in Ukraine and Taiwan. It is more complicated than that — Iran and North Korea are both in play.
This could go ugly on an ape quickly. Go read this:
3. Continued unrest in the country. These violent riots night after night are killing businesses in local areas.
Nobody is reporting the small business impact, but it is substantial. Some of these areas will never recover.
WTF is wrong with our Mayors, Governors in allowing this to occur nightly and continually? Do your damn jobs.
4. Bad immigration policy. We are currently looking at an annualized rate of illegal aliens crossing our southern border (2.4MM annualized based on current monthly rates of apprehended and non-apprehended illegal crossers) at more than twice the legal rate (1.2MM legal immigrants via visas of all types).
These illegal immigrants are all low skill, low wage expectation workers who will dampen wage gains by muscle workers throughout the United States.
They will also put tremendous pressure on the social safety net and schools.
This is a correctable error. We need to correct this.
5. Bad fiscal/monetary policy. While I am not a deficit hawk, there is a day of reckoning coming soon.
Inflation is out there — I don’t care what the Fed or its Chairman says. Have you seen the price of lumber and building materials?
I had to buy a new exterior door the other day. I expected to pay about $300. I paid $700. The door — no frame, not pre-hung — was an 80″ x 36″ x 1 3/4″ Douglas Fir paint grade, fifteen lite (traditional French door type) slab (not pre-cut for hinges or hardware).
I could only find one company, Simpson, who made this door regularly and got prices from distributors from $1,800 to $700 for the same damn door.
When I went to order the door, I saw some shiplap siding that I admired. Figure a nice shiplap siding sun porch or family room.
The shiplap was 16′ long, 8″ high, 3/4″ thick, lapped top and bottom = $63/board. Wow. Last time I bought something like that it would have been about $20/board. Granted, I haven’t bought any in a long time, but still.
6. Increasing taxes — there is nothing that kills a growing economy like taking the profit and paying it to the government.
The government has a multiplier effect of about 0.72 — meaning it eats money and returns less because it costs so damn much to run places like the IRS — whilst private industry has a multiplier effect of 3.2 — meaning it uses profits for growth and hiring.
Bottom line it, Big Red Car
We are headed for a monumental date with a powerful economy once again if only we have the cotton picking sense not to derail it. I am optimistic and hopeful, but I always am.
Be well, amigos and GET YOURS.
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Call you best friend from college, your sister, or your parents. Scare the Hell out of them.