Yes. The dreaded D-word. The one prognosticators are dancing around. “Could this be a depression?” or, will this lead to “depression-like numbers?”
Folks, we are in a Depression! The first one in this century. There have been 11 recessions over the last 110 years, but only one depression: The Great Depression, which started in 1929 and lasted until WWII.
At this point, I am sure some readers are either resistant to or scared of the word. So, let me give you some data and, of course, forecasts.
As of April 23 the unemployment numbers show 26 million Americans out of work. There are approximately 130 million full-time jobs in America. 26 million is 20% of 130. Add in the 3.5% unemployment at the start of this year and we are at 23.5%. Add in the reality that people haven’t been able to get through online to file, and 25% is a fair number. (Note: this column is being written before the 4/30 unemployment numbers are announced. Add those numbers to these.)
The three highest levels of unemployment during the Great Depression were:
• 23.6% in 1932
• 24.9% in 1933
• 20.1% in 1934
Since 1945, the only time we had double digit unemployment was 1982 at 10.6%. So, we are now firmly in depression numbers.
Given all the uncertainties around COVID-19, it is difficult to estimate what GDP, nationally and globally, might be for 2020. My forecast is that U.S. GDP will be down at least 5% compared to 2019. If, in the fall, we experience a “second wave” of the virus, then we will be closer to a 10% decline, or more. 2021 will be half the percentage decline of 2020. Again, let’s look at Great Depression numbers on the year over year of GDP decline:
• -8.5% in 1930
• -6.4% in 1931
• -12.9% in 1932
• -1.2% in 1933
• -3.3% in 1934
Hopefully this depression won’t be as bad, but how the U.S. and the world coordinate to handle the pandemic over the next 18 months will determine how long and deep it will be.
We will soon be getting some real data on this as some states are now in the process of slowly opening up. This means that by the end of May we will know whether that was a good idea, or a really bad one. I think that many politicians, from the White House to governors, do not fully grasp that the cause of the depression is this public health crisis, and that defeating the virus with testing, tracing and treatment is the best economic strategy to take.
I have always admired leaders who truly are interested in their constituents’ well-being and who, in times of crisis, step up to lead. I don’t think I have ever witnessed anything as bizarre as Governor Kemp of Georgia announcing with great fanfare, in the third week of April, that in five days he will open up hair salons, tattoo parlors, bowling alleys and massage parlors. Not exactly Churchillian. Equating freedom with opening bowling alleys and tattoo parlors is a new low.
We will be watching to see how Georgia residents respond. Will the shops open? Will clients patronize them? And in three to four weeks, we will find out whether the number of cases of COVID-19, and resulting deaths, start increasing again.
When making forecasts, it is not about being optimistic or pessimistic, it is about accuracy based on data, information, and both long- and short-term trends.
Debt is a long-term concern, but not so relevant in the short-term. That said, the deficit was $1 trillion in 2019, the first time that ever happened in a growing economy. The 2020 deficit will be around $4 trillion, a number that should stop you in your tracks. This is a topic for future columns.
We are entering a period of deflation. Yes, the other D-word. There was a run-up in prices for toilet paper and other staples these past few weeks, but groceries and cleaning supplies are one of the few product categories that will not suffer deflation.
I know that some of you might think that with the Fed printing trillions of dollars there will be inflation. There wasn’t inflation in 2008-2012 resulting from the last major bailout, and there won’t be now. Used car prices have dropped almost 15% in the last month. Do you think people are ready to splurge when they haven’t been paid in months, their place of employment has closed, their savings are dwindling, or they owe months of rent? Of course not. After the initial “getting out of the house” euphoria, when people have finally had their hair cut or their nails done, they will be watching their pennies. There will be more supply than demand.
Apparel, and its subset fashion, are down for the count for the next two years. Cars sales have plummeted and will continue to do so. Many bars and restaurants will not reopen, and some that do will end up closing their doors. There was already a saturated market and now, with social distancing, it is hard to see how restaurants with 25-50% fewer seats will survive.
The business sectors facing uncertainty and definite deflation, at least until there are successful treatments that eliminate death, and ultimately a vaccine that prevents the virus, are:
• All aspects of the travel industry: airlines, hotels and cruise ships
• Live theaters and music venues
• Movie theaters
• Office space — this will be a long-term collapse (more on that in a subsequent column)
• Restaurants and bars
• Spectator sports.
• Education (a column on that soon)
This all comes down to three primary drivers: lack of income/loss of a business, initially more supply than demand, and a significantly changed sense of self relative to being self-quarantined. We will have a different relationship to consumption than we did at the start of the year. We all will certainly learn lessons around what is really important — core to survival — and what is not. Just as the Great Depression scarred my parents, and resulted in them saving, saving, saving even well after good economic times returned, this depression will trigger all to save for a rainy day, or the next pandemic.
Again, my goal is to be right in my forecasts, so you can plan. I don’t think I am wrong in any of the above, though I truly wish I was.
Your thoughts readers?
Sarasota resident David Houle is a globally recognized futurist. He has given speeches on six continents, written seven books and is futurist in residence at the Ringling College of Art + Design. His website is davidhoule.com. Email him at email@example.com.