HAVE HOPE, BUT PREPARE
HAVE HOPE, BUT PREPARE *FOR A MULTI-YEAR CLIMB FROM COVID'S RECESSION By Sue Putnam (Editor’s Note: Dan North has been with Euler Hermes North America since 1996, using macroeconomic and quantitative analyses to help manage Euler’s risk portfolio of more than 0 billion in annual U.S. trade transactions. As an economist he has appeared on CNBC, Dan North Fox Business News, France 24, The Street, and Bloomberg Radio and Television. He has been quoted by Barron’s, Business Week, Paris Le Monde, Tokyo Nikkei, the BBC, the New York Times and the Wall Street Journal. After having predicted the 2008/2009 recession and its implications accurately, he was ranked 4th on Bloomberg’s list of the 65 top economic forecasters in 2010. North holds an MBA from the Wharton School of Business.) Dan North, Chief Economist for North America at Euler Hermes, recently was featured as the keynote speaker during the National Hardwood Lumber Association’s On Demand virtual conference. During the presentation North detailed the economic devastation wrought by COVID-19 and also pointed to reasons to have hope as the economy rebuilds with job recovery anticipated to take place over the next three years and the Gross Domestic Product (GDP) to reach pre-pandemic business levels in 2022. The biggest risk to that recovery? North said the potential resurgence of COVID-19 this winter concerns him the most. To follow are key take-aways, followed by some details to provide context. North’s recap summarily stated that this year: •Even before COVID-19, our economy was fragile. •Response to COVID devastated our economy. •Massive job losses, many permanently, were the result. •Income dried up, which could lead to many people having difficulty paying rent and mortgage. Food insecurity may be an issue for many too. •Personal delinquencies and bankruptcies to rise. North explained that prior to COVID-19 manufacturing in the U.S. was in a recession and a trade war with China contributed to an overall fragility of the economy. Then COVID and the subsequent shutdown occurred. North said, “In the 10 years since the Great Recession – from 2009 to end of 2019 – the economy created 23 million jobs and they were all wiped out in five weeks due to COVID.” While those numbers through August and September, at the time of this presentation, continued to decline, North noted, “They are still at astronomical levels.” JOBS RECOVERY Following historical economic patterns, North explained it will be “2023 before we get all those jobs back.” However, he also noted that many of those jobs are permanently gone. “We’ve had job gains since businesses began re-opening and there are a couple of reasons why. The first gains were easy ones,” he commented. “These were cases where non-essential businesses opened back up and the employer called the employee back. Now, you have to ask how many more situations are like that because most states have lifted most restrictions so there are not going to be a lot more situations like that to gain jobs. In the meantime we have lost a lot of jobs permanently, so there are fewer jobs to return to and the job market has gotten much tougher. There are many fewer than there used to be. So, job gains are slowing, unfortunately.” 22 CHRISTMAS 2020 n NATIONAL HARDWOOD MAGAZINE
FOOD INSECURITY North pointed out another topic that he said shows how much the consumer is actually suffering. A recent Census Bureau survey shows the large number of households with children and adults who, during the course of the survey, did not have enough to eat. "BY MANY OF THESE ECONOMIC MEASURES WE MAY HAVE BOTTOMED OUT. YOU MIGHT THINK WE ARE OUT OF THE RECESSION, OR AGAIN, BOTTOMING OUT. IT DOESN'T MEAN THINGS ARE GOOD. IT MEANS THINGS HAVE STOPPED GETTING WORSE." – DAN NORTH, CHIEF ECONOMIST FOR NORTH AMERICA, EULER HERMES DROP IN CONSUMPTION Contributing to the recession is the decline in consumption by the consumer. North said, “Personal consumption is about 70 percent of economic activity – people buying food, clothing, gasoline – things that consumers would buy on an everyday basis.” North said that dropped enormously in April, rebounded some due to the CARES Act, which was “an enormous boost” but once that boost was gone, income went down again. He added, “Income went off of a cliff. This is putting people in a risky situation.” For example, at the time of this writing, about 3 million mortgages were in forbearance. “Overall, there are around 11 percent of all active mortgages sitting out there that are in forbearance and that’s great that people are getting a break, which they probably should because they were forced out of work by the government. But are the lenders going to get a bailout at some point because they have bills to pay, too? Overall we have to see that income for consumers has dropped off causing an increase in mortgage defaults and forbearances and that consumers continue to stay fragile,” North stated. Pile on credit card debt, student loans, etc., and post- CARES Act, payment on these decreased too. AND IT’S NOT JUST DUE TO THE OVERALL JOB LOSSES With schools teaching virtually this fall, many households lost income because one parent had to stay home and give up income. North explained, “People were asked how much of your household income do you expect to lose because your child is not going to school. 30 percent of the respondents expected to lose between 10 and 25 percent of their income. That’s a dramatic drop-off of income.” PRIVATE BUSINESS FRAGILITY When COVID and the shutdown first occurred, North said, small businesses that were polled were asked how long they could survive if sales completely stopped. In April, 34 percent responded they had one to three months’ worth of cash to survive. But they adjusted and by September answers had shifted to they felt they could make it a year. Please turn to page 34 CHRISTMAS 2020 n NATIONAL HARDWOOD MAGAZINE 23
