First and foremost, let’s be clear: there will be a recovery. The world is not coming to an end, there will be no doomsday, and life will go on. Just like nature, the economy will find a way. So, to those individuals who bought van loads of toilet paper: the chances are that you will need your storage space back much faster than you could ever use said commodity, so now is the time to think about how you can utilize all that tissue for 2020 holiday gifts. Costco will not be refunding!
Nonetheless, the situation is both extraordinary and exceptionally serious. While we can say with conviction that the economy will recover, what we can’t predict is by when and what the collateral damage will look like.
Setting aside the pressing health-based human impact of COVID-19, there is a chain of social and economic crises right now, all which are in their infancy in respect of size and impact.
The most pressing issue is unemployment. As we move forward, assuming job losses continue at the same rate since mid-March, unemployment will increase by almost half a percent per day. Putting it into context, since the last great recession, unemployment dropped almost at that same pace per year.
What is often misunderstood is the 2008/9 recession *rate of separations actually reduced. The decrease in employment was less due to layoffs and far more a result of a steep decline in hiring. This resulted in longer unemployment cycles and the compounded social and economic effects that played out during that difficult period.
*term used to qualify employees leaving jobs voluntarily or involuntarily
An uncle of mine always said the singularly most used term on Wall Street is “it’s different this time,” and actually, this time it really is. When the time comes to reopen our restaurants, the US will most likely have 30m+ unemployed, a somewhat shell shocked society, and a load of unpaid bills, so yes, this really is different!
The austere reality of shuttered restaurants, empty freeways, deserted airports, and the associated orbit of unpaid rent and mortgages can only result in chaos at multiple levels. Economic disarray leads to a multitude of societal issues that include, but are not limited to, higher levels of depression, suicide, divorce, and crime. Without question, the longer the pandemic lasts, the quicker the downturn morphs into a momentous financial crisis that will most likely dwarf the experiences we endured in 2008/9.
As markets shake off billions of dollars in value, investors change behavior; they feel less rich and migrate to safer planes. The economy subsequently puts pressure on the hydraulics and ultimately available cash sits in safe havens.
As a rule, larger markets rise relative to the economy, and consequently the loftier the potential decline. Global markets have virtually quadrupled the size of the global economy since 1980, so simply based on the theory of what goes up must come down, the cliff is steep, and there is no bungee cord.
Most important will be the impact that unemployment has on the nation. In 2015,the World Health Organization published a study that examined the social costs of the 2008 banking crisis and the consequential economic recession. The study explored the link between increased levels of unemployment and suicide. The results were worrying as the research attributed one in five suicides per year worldwide to unemployment, with a further number of deaths caused by the economic crisis. However, this time around unemployment levels are likely to exceed 2008/9 by at least 100%, therefore it is not unreasonable to estimate a confounding rise of 40% in attributable suicides. In other words, for every 1 million unemployed, suicide rates increase by 2%.
Suicide is not the only human cost arising from recession; depression, self-harm, stress, anxiety, low mood, alcohol / drug related dependency, relationship breakdown, domestic violence, and so on, are all elevated in our communities at the time of a recession. The span of these problems directly correlates with the depth of the economic crisis.
Then there is the economy itself: how long will the bad times last? Just for clarity; I keep talking about a recession, however we are not actually in a recession at the time of writing this view point. A recession is defined as economic decline over 2 successive quarters (6 months) and is usually measured in GDP. Given this downturn has just begun ostensibly at the beginning of March 2020, technically we have five months left before it’s official. However, try saying that to the tens of millions of unemployed who are struggling to find work and pay bills. Therefore, for the point of this narrative, the term “recession” will be recognized as the current economic state. I think most agree that, short of some form of messianic intervention, we are heading into a recession and the brakes are broken.
Let’s steer back to the restaurant industry. The US restaurant industry, is the country’s second-largest private sector employer, comprising more than one million restaurant and food service outlets employing more than 15.6 million workers, equating to circa ten percent of the nation’s workforce.The number of middle-class jobs ($45K-$75K) in the restaurant industry grew 84% between 2010 and 2018, more than 3 times faster than the overall economy. Restaurants employ more minority managers than any other industry, and pre COVID-19, 1.6m new jobs were expected by 2030, which is despite futurist consultants like me stating there will be job contraction in the industry as a direct result of new technology introduction such as robots and drones.
In other words, our industry is BIG!
The US restaurant industry reacted extremely supportively to the government’s requested /mandated closures. This is because our industry is inherently an industry of servants who believe in the collective effort to serve the community at any cost. Unsurprisingly, the restaurant and food service industry has been one of hardest hit from the shutdown with layoffs and furloughs expected to reach 5-7million, a little shy of half the industry workforce. Even when the shelter-in-place period concludes, there can be no expectation that there will be a miraculous comeback. Indeed, the concept that the government blows the “get back to work” whistle and we all joyfully skip back to work is regrettably amiss of reality.
This is where it becomes interesting.
As we know, it is far easier to close a restaurant than it is to open one, and yet, so far the game plan, if there is one, (there isn’t by the way), is that hundreds of thousands of restaurants and bars, not to mention all the hotels, theme parks, airports, food service canteens, and so on, will reopen for business pretty much at the same time, maybe not all on the same day, but certainly within a short spectrum of time.
The White house announced last week its Great American Economic Revival Industry Group” for the restaurant industry, essentially a group of eminent CEOs and corporate leaders covering fast food, fine dining, industry associations and packaged goods.
The re-opening phase will be one of the greatest food-based mobilizations in US history, we absolutely need a lot more than a handful of corporate CEOs and high profile individuals advising the government on matters that they are far removed from on a daily basis. While I greatly respect each of the appointed individuals, I am sure even they would agree this is not a balanced committee. 70% of US restaurants are independent and privately owned;Where are the small business owners?Where are the consultants who work with these small businesses daily?And where are the local vendors and farms who supply them?
It is simply inconceivable to imagine that a CEO of a corporation of say 20,000 plus employees and earns over $1m a year with millions in share options, or a multi-millionaire celebrity chef, can understand the life of a business owner who has one or a few restaurants, and has to face many harsh decisions daily right now to support his / her family, employees and business survival. Goodness, even the SBA whose name is SMALL BUSINESS Administration, approved millions of PPP funding to corporations, resulting in funds drying up, consequently leaving many small businesses to close down and starve.
The good news is that we have faced many grave situations in the past, yes this time is different, but humans just find a way. Indeed, we are at our most innovative, spirited, and pugnacious when faced with extreme adversity. There is just no question that we are in this for the long haul, and to exodus as unscathed as possible, we must plan and collaborate inclusively and think about the key metrics of success in both health and economic terms.
So how bad is it? Yes its really bad; probably the worst in our lifetimes, but in time we will be just fine with or without the support we so badly need.
Author of Post Covid-19 Reboot, Experts’ guide to reopening your restaurant business post COVID-19
CEO of The Next Idea Group