by Elle Seybold
on Monday, April 27th, 2020 at 10:25am.
I have spent a great deal of time reflecting on the course our lives are taking. While I do not believe this is a paradigm shift (excepting the present moment), I do foresee significant and meaningful changes. First in the way people work (even more remotely); second in supply chain patterns (more home delivery of goods and curbside pick-ups as well as increased nationalism) and finally in our attention to potential pandemics.
This virus is not going to disappear anytime soon. Many scholars are estimating that the U.S. should, at a minimum, maintain the lockdown for 2 months. Some suggest 4 months to truly move past the danger. While I am not an epidemiologist, I do understand that viruses don’t simply “go away”. Instead they mutate until they effectively suicide themselves. This is a fairly rapidly mutating virus, though not enough for it to die in a matter of weeks. What’s more, it may return in a second round, much as the Spanish Flu did. Be prepared for a mask to be a standard accessory.
As the pandemic slows in developed nations, it will accelerate in developing ones. In poorer countries, where fewer jobs can be done remotely, distancing measures will not be as effective. The virus will spread quickly, and health systems will not be able to care for the infected. The virus overwhelmed cities like New York, but the data suggest that even a single Manhattan hospital has more intensive-care beds than most African countries.
As for China, China’s cover up caused tremendous loss of life and economic well-being. Research has come out that suggests that if China had alerted people three weeks earlier than they did, infections could have been reduced by 95%. If China had alerted even one-week earlier infections would have been reduced it by 60%. We must be vigilant to developments around the world and operate with scepticism and rational thought.
China is now exporting medical supplies, especially to Europe. Their attempt to play the hero by supplying communities has backfired somewhat. Though the propaganda is positive, their products have been largely dysfunctional. Nevertheless, the U.S. looks the villain as we are choosing to close down our exports of medical products and therefore are upsetting our trading partners and countries in need.
I am particularly concerned about the economy going forward. We should expect to see substantial debt defaults as individuals who now have no (or reduced) income are incurring unmitigated debt payments (save student loans). This country suffered a negative savings rate to begin with… now we are facing not only a weak and frightened consumer but an insolvent consumer.
What’s more, the debt burden on the nation has grown exponentially. The handouts from the government will not be ended quickly or easily. The amount of debt this country is taking on is staggering. In addition, some people are now making more money staying at home and not working than they were when they were gainfully employed. A perverse incentive indeed.
How We Work
Of immediate concern is the fact that there are not enough workers to produce goods. Though demand has taken a nosedive, there are several manufactured products we need (toilet paper) – and the people who create them have been furloughed or are otherwise told to stay home. Undoubtedly this will lead to shortages.
Many manufacturers have repurposed their assembly lines to create PPE and/or ventilators. Here again we should expect to see supply cuts as the products they were producing have been arrogated.
Employment in logistics, which is already 6.5% of total U.S. employment, will likely increase. In contrast to a decrease in retail jobs. Hiring in logistics is likely to come in the same locations as the reductions in retail, though I don’t see the employees who work in either sector as interchangeable.
Transitioning to increased remote work will shift housing patterns. People may de-urbanize as they are able to live in areas they desire vs. those required to meet a workplace commute. I expect that will allow for continued demand in the Santa Fe area as the city will likely be a beneficiary of more remote offices. Indeed, our political leaders should capitalize on this.
Globalism will be materially reduced as countries endeavour to have sources of key materials and products, especially drugs, rare earths and tech components produced internally. The U.S. Administration is likely to develop an industrial policy requiring “Made in America” for critical commodities and products. This is concerning. Protectionism and nationalism are not the answer, rather a diversification of the supply chains would reduce our dependence on a single (or sparse) source. Reduced trade will only result in higher prices, weakening U.S. production and exports and further reducing supply.
Fifty percent of cargo is shipped on passenger aircraft. With the reduction in passenger air traffic there has been a commensurate decline in freight capacity – at a time when that capacity is greatly needed. This has had an impact I’m sure you’ve noticed in delayed shipments and retail supply challenges.
The problems facing rich countries, daunting as they are, are dwarfed by those awaiting many poor ones. Without domestic production capacity, many are entirely reliant on imported medical equipment, and hence acutely vulnerable to caps on others’ exports. Trade restrictions are also obstructing humanitarian aid. Beggar thy neighbor trade policies are a lose-lose game.
We need a Bioforce – a new branch of armed forces – that will stand guard against these kinds of outbreaks. We confront nature more and more frequently due to our growing population and are therefore increasingly exposed to zoonotic diseases. There are things that we can and should be doing to protect against another pandemic.
Wealthy nations should support the development of poorer nation’s primary health-care systems. The pandemic has shown us that viruses do not obey border laws and that we are all connected, whether we like it or not. If a novel virus appears in a poor country, we want its doctors to have the ability to spot it and contain it as soon as possible.
It is expected that by the second half of 2021, facilities around the world will be manufacturing a vaccine. If that’s the case, it will be a historic achievement – the fastest mankind has gone from recognising a new disease to immunising against it.
Real Estate Markets
In March, sales of previously owned homes fell month-on-month, but were still higher than a year ago. However, these figures are based on closings from contracts signed before the pandemic and analysts expect sharper declines in sales activity in coming months. Home prices were up 8% year-on-year and inventory remains 10% lower than a year ago. Social distancing measures and economic uncertainty restrained home building activity in March. Though this data is encouraging, I suspect we will see a significant slowdown in the market – again, not based on fundamental weakness. Instead, as with everything, people are simply standing by.
Digging deeper, buyers are less likely to purchase on a cash basis – instead, financing makes good sense. Many sellers have held back, further reducing inventory, due to fears of either contagion or a price drop. Now is a good time to put your home on the market – you may be able to get ahead of any disruption in the market. Longer-term, the effects of the drops in income will lead to a deterioration of prices. The impact will be location dependent. Santa Fe’s wealthier and older demographic will help support local market strength as it will be less affected by the job market.
The U.S. will emerge better than most. The U.S. acted relatively fast and effectively, and closing the borders was essential. Testing will catch up. There was no way to know to produce ventilators – no matter what the talking heads say – you simply don’t purchase those by the hundreds of thousands when there is no forecasted need.
The E.U. is in bad shape, and recovery for them may seriously raise the issue of its survival as a governing entity. Of particular concern is Italy and Greece, it is hard to see how those countries can economically recover from this as they were insolvent before the virus. France, as well, has a hard road ahead.
The internet has made a huge difference. Without the ability to work online, we would have a complete collapse.
The world economy will be depressed, demand will stay low as people spend more conservatively. Production and trade will shift. The lockdown will have lingering effects as jobs have been lost that will not be recovered. As have many businesses. Areas with the worst toll from the virus will also suffer the worst economic dislocation.