The media is full of news about the COVID-19 virus, including its rapid spread and the first U.S. death occurring at Evergreen Hospital in Kirkland. Is the mainstream media hyping this more than they should? My friend, the microbiology professor at the UW School of Medicine, sent me an update from the Journal of Autoimmuity for me to read. It is current and in the typical, technical language of science. Having read it, I’d have to say this is going to be worse than we’re reading in the media.
The next question for all of us is, how do we avoid becoming victims? I think the media is covering this well. And then the question, in my mind is, will COVID-19 trigger a recession? The short answer is: probably.
The Longer Answer
We’re in the longest expansion the U.S. economy has ever enjoyed. I thought we would have a recession in 2017, but here we are three years later. Some of this is due to extremely low interest rates and a huge amount of deficit spending. Both these factors have contributed to the sugar-high we’re on. Both factors limit what the Federal Reserve can do to prevent a recession.
Already it is clear that any business involved in international travel is going to be hurt. The Mayor of Seattle is trying to convince people to come to the International District for Chinese food, such is the dearth of customers. Many small businesses, maybe most, can’t weather this sort of downturn. There will be many failures.
International supply chains are already experiencing shortages, causing production lines to shut down or for retailers to have stock-outs. Part of that is because most of the world has gone to just-in-time inventory management, meaning not much stock is held. And we’re in the very early days of this.
I’d like to think that the Seattle economy is going to be different. After all, the high-tech companies have healthy balance sheets with plenty of cash reserves. But they are also public companies and are judged by quarterly earnings. As things slow down, long-term projects will be deferred. Even our crazy building boom could be left with a lot of vacancies.
We need to remember how fragile the economy can be. Relatively small decreases in revenues can cause a recession to happen. Also, to remember: we’re usually told we’re in a recession about six months after it started. Has the recession already begun? Time will tell, but that’s very possible.
In the meantime, what should we do with our businesses? I’d suggest all the things one does when a recession is looming. Get a line of credit increase while your financials still look great. Don’t make major purchases and be prudent about taking on debt. Create a plan for steps you would take if the business must go into survival mode. Strengthen relationships with key vendors and customers.
Fear of recession is often a self-fulfilling prophecy. As we all pull back, largely to wait and see how this plays out, we contribute to the economic downturn. But what else can we do?
I also observe that all recessions have much in common, but the trigger is usually different. In my career, I remember the savings & loan crisis of the ‘80s, the dot com bubble of the ‘90s, the Great Recession of 2007-2009 due to the mortgage system meltdown and various and sundry smaller economic hiccups. In our inter-connected world, a global pandemic may trigger our next recession.
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