Complete Story
03/26/2020
How to Protect Your Business in This Time of Uncertainty
SGIA March 2020 Economy Watch
Source: Andy Paparozzi, Printing Impressions, March 23, 2020
The virus’s effect on the economy has been sudden and profound. GDP will contract significantly during the second quarter of 2020 — by 5%, according to Goldman Sachs — as social distancing shuts down everything from movie theaters and restaurants to professional sports leagues. Moreover, projections of a strong second-half rebound assume the warm, humid weather of late spring and summer will significantly slow propagation of COVID-19. That isn’t unreasonable, given the behavior of other viruses. But it is no sure thing. And until propagation slows, the disruption of countless businesses, entire industries, supply chains, and financial markets will increase and the odds of skirting recession will decrease.
How this all plays out will depend on the economy’s underlying health and the effectiveness of the support the Fed and Washington provide. Coming into 2020, the economy was fundamentally sound, with household income and savings up, financial institutions well capitalized, and credit available at very favorable terms. (Mortgage refinance is booming.) Additionally, production capacity has been idled, not destroyed. As soon as it’s safe to be around our coworkers again, we can be up and running.
The Fed is lowering interest rates. Even more important, it is supporting essential global supply chains. As John Greenwood and Steve H. Hanke explain in “How to Ease the Coronavirus Panic” (The Wall Street Journal, March 10, 2020), the chains are centered in Asia but denominated in U.S. dollars. If we get them enough dollars quickly enough, which the Fed is trying to do through a complex set of monetary tools, the authors believe “recession can be avoided.”
Washington is thinking big. Proposals range from a payroll tax holiday and sending households $1,000 checks per adult and $500 checks per child, to expanding eligibility for food stamps and Medicaid. We don’t know which proposals will be enacted and in what forms. But the final package is likely to exceed $1 trillion.
To be effective, aid should be immediate, direct (provided to individuals, not routed through bureaucracies), and target the most needy. Examples include subsidized sick leave, expanded access to unemployment insurance with no waiting period or job search requirements, and loan guarantees and grants to small businesses, modeled after disaster relief programs.
Protecting our companies begins, of course, with protecting our employees and their families. Nothing matters more. Staying in touch with clients, suppliers, and lenders is essential. So is drawing on the resources of federal, state, and local agencies. Remember, there’s no reason to go it alone.
