The past several months have been filled with uncertainty as the world has responded to a global pandemic. Some nations, industries, and individual businesses have dealt with greater levels of uncertainty than others, but we have all dealt with uncertainty at some level. As individual U.S. states and regions begin to restart their economies, we can identify known variables that will have unknown outcomes. For each of these variables, we must consider when action will be taken (in the next few months v. a year from now) and when the effect of the action will be felt (quickly v. some time in the more distant future). The known unknowns listed below have been divided by short term (action taken soon) and long term (action beyond six months).
The virus trajectory includes two separate items: infection rate and treatment. Infection Rate Unknowns: Will the US have a second wave of infections? If so, what will be the policy and practical response from governments, businesses, and individuals? Will a second wave create a second quarantine? How will responses vary by region –will some regions have a quarantine while others remain open? Treatment Unknowns: Treatment unknowns could be short term in nature, but could easily become long-term issues depending on the speed of treatment trials. How soon will a vaccine be widely viable? Will consumers broadly get vaccinated?EmploymentEmployment has taken an unprecedented hit over the past few months, creating a whole host of potential issues. The most important question for both the short term and long term focuses on the availability of labor: Will the shutdown permanently dampen the labor participation rate in a way that persists beyond the short term for several years (or decades)? How many people are currently under-employed? And, how many will remain that way for longer than a month or two?
The key question regarding unemployment is: Will unemployment claims drop off quickly as businesses enter the restart phase or will some (or all) parts of the economy experi-ence prolonged unemployment?
Are states processing all unemployment claims each week or is there a sizable portion of claims that are stale by a week or more? Will the federal government extend unemployment benefits beyond the end of July?Unemployment seems to be focused in lower-paying jobs. Will future job losses occur in higher-paying jobs or will low-wage workers continue to take the brunt of the hit?
The stimulus provided by the federal government has been a welcome relief for many businesses, but a great deal of very substantial questions remain. These unknowns –if ultimately resolved in a detrimental way –could have devastating effects on a business. The stimulus serves as a bridge for businesses across the containment phase between the shutdown and restart phases.
Short-Term Stimulus Unknowns: Will the stimulus funds (or available capital for businesses not receiving stimulus) be enough to carry businesses until sales during the restart provides adequate cash flow? Will additional stimulus funds be allocated by the federal government? If so, will they be direct to business or direct to consumer? Will future funds be indirectly allocated (tax breaks)? Demand Disruption Unknowns: How quickly will business investment return? Business Investment was steady, but not robust, prior to the shutdown. Can we return to steady or –better yet –achieve robust business investment?
Those two questions will sustain a myriad of research and analysis, but the sooner we can get to a solid conclusion the quicker we will be able to understand the economic response. Paycheck Protection Program (PPP) Unknowns: How soon will PPP loans start being forgiven? What percentage of PPP loans will be forgiven? Will PPP funds be taxed if they are forgiven? To what extent are employees financially better off to be on unemployment rather than retained using PPP funds?SentimentConsumer sentiment is a frequently discussed issue around any economic downturn. In this case, the questions focus on how long consumer sentiment will remain positive. Will consumer sentiment remain positive enough to carry the economy until it restarts? Will consumers at some point start to focus on the potential for a long-term downturn rather than the desired restart upturn? If the consumer’s focus shifts to a potential downturn, what are the implications of this shift? Have the events of 2019 and 2020 (trade war, COVID, USMCA) altered consumer and business sentiment to the point of creating a shift toward reshoring or a diversified supply chain? These events could be seen as being motivated by several different factors (or a hybrid of multiple factors):
- a “no China” policy resulting in sourcing materials from other international countries shifting away from China
- a push to diversify global supply chains to provide more stability
- a push to return production to the US either as an act of diversification or nationalism.
2020 is an election year, and we have unknowns surrounding both the outcome and the process. How will the outcome of the election affect the economy and consumer sentiment? Perhaps equally important, how will the behaviours of politicians, business, and consumers change or be affected by the process of going through an election?
The long term unknowns remain very important as we think about the effects of the shutdown and restart. Some of these variables may alter the course of the economy for years (or decades). Additionally, several of the short-term actions discussed previously will (and should) have long-term impacts. The unknown is in determining whether these impacts will be positive, neutral, or negative –an assessment that may take years (or decades) to fully understand.
The Infrastructure Unknown: One key long term unknown for the freight transportation the industry is: Will the federal government pass an infrastructure bill in the next three to four months? If so, how soon will those funds actually get spent?Remote Work Unknowns:We have engaged in a great experiment in remote work for large portions of the U.S. and global economies. This experiment likely has accelerated trends that would have taken years to play out
otherwise. Some questions surrounding these changes include:Will people shift to working from home more, whether full time or part time? If people make this shift, what might be the impact from a drop in demand for commercial real estate? Preliminary evidence seems to suggest that employees find working from home to have several benefits, and employers can potentially reduce costs while maintaining productivity.If we see a shift to remote work, how much will that increase demand for residential real estate? Will people want larger homes or be willing (or desire) to live further from a metropolitan center?Long-Term Stimulus Unknowns:An additional key unknown surrounds the long-term effects from the government stimulus:
Will the government be able to manage the federal deficit in a way that does not become a burden for economic growth?
The difficulty with all of these unknowns, both short term and long term, is that strong cases can be made both for and against different outcomes. For now, we want you to know the questions we are asking to guide our research and analysis. As we know more, we will share more.