Hard Truths About COVID-19 and Our Economy

By Dean Barber, Principal, Barber Business Advisors

The coronavirus outbreak already has affected our daily lives and the U.S. economy and will for some time to come. How long, we are not certain.

Scientists believe we are looking at a virus with a mortality rate of about 1 percent. That sounds low -- meaning that the average person infected will likely do OK with it -- but it could result in an onslaught of sick people requiring acute care at the same time, so much so that hospitals will not be able to cope with the surge. That's what worries health care professionals the most.

Right now the epidemiologists in this country say they are working in the dark, because there has been so little testing to date. The numbers we are seeing are not true numbers. Where and how deeply the virus has taken root remains unclear.

We need to do as much social distancing as we can, especially for vulnerable populations such as the elderly and those with medical conditions. And we need to stay calm.

To those who have said this an overblown, manufactured crisis by the liberal media, or just the flu, perhaps President Trump's declaration of a national emergency on Friday will impress you that the threat is all too real.

But all storms pass. Life will return to some sense of normalcy. This is now happening in China, where Apple reopened all its 42 stories on Friday. And it will happen here, too, with time. Just hang in there and take reasonable precautions.

Work from Home

With businesses and schools requiring more people to work and study at home, are we looking at something that could become more permanent for some workers, even after the virus crisis has passed?

“The virus could act as a game-changer for remote work,” Prithwiraj Choudhury, a professor at Harvard Business School told Axios.

Most companies and universities are not yet built for the virtual world. At least not yet. But we may look back at this virus and identify it as a turning point.

Less than 4 percent of Americans work from home full time. Remote learning is more prevalent, with just under 16 percent of U.S. students taking all of their courses online, per a recent study from the Department of Education.

Many jobs, of course, simply can't be done remotely. And the fact remains that managers and teachers value face-to-face interaction. They know, correctly, that sharing physical space fosters teamwork and sparks creativity.

What remote workers gain in productivity, they often miss in harder-to-measure benefits like innovative thinking. Studies have found that people working together in the same room tend to solve problems more quickly than remote collaborators, and that team cohesion suffers in remote work arrangements.

Steve Jobs was a famous opponent of remote work, believing that Apple employees’ best work came from accidentally bumping into other people, not sitting at home in front of an email inbox.

Being near other people also allows us to express empathy and collaboration. Those are the skills that can’t be automated. In short, it's what makes us human.

Flattening the Curve

Many health experts, not all, expect that a majority of people will eventually be exposed to, if not infected with, the coronavirus. The total number of infected people isn’t what scares many epidemiologists. It’s how many are infected at the same time.

Slowing the spread of the virus reduces the burden on the health care system, increasing the chances that those who fall ill can get the help that they need. Slower outbreaks tend to infect fewer people over a longer time period, reducing the impact on the wider health care system from a roster of potentially devastating trickle-down effects. Epidemiologists call this "flattening the curve".

We can flatten the curve by engaging in social distancing, proper quarantining and proper hygiene. If we can slow the rate of spread, we will have enough resources to properly care for everyone. This buys us time and will ultimately save lives.

South Korea has flattened its curve by engaging by extreme testing. The test takes 10 minutes. Results are texted to you, usually the next day. And it's free — paid for by the government. Drive-through centers have helped South Korea do some of the fastest, most-extensive testing of any country, and experts credit the emphasis on testing with reducing case numbers and fatalities.

Here in the U.S., there have been numerous reports of people having difficulty getting tested. Some have been rejected because they exhibit no symptoms, even though they had been in proximity to someone who tested positive.

Others were refused because they had not traveled to a hotspot abroad, even though they had fevers and hacking coughs and lived in cities with growing outbreaks. Still others were told a bitter truth: There simply were not enough tests to go around.

“The system is not really geared to what we need right now, what you are asking for. That is a failing,” said Dr. Anthony S. Fauci, who leads the National Institute of Allergy and Infectious Diseases, in testimony before the House Committee on Oversight and Reform on Thursday. “It is a failing. I mean, let’s admit it.”

The Economic Impact

President Trump announced a national emergency on Friday and the stock market responded favorably. Why?

Because finally we heard about a mass plan to increase testing for the virus, and saw evidence of a public-private partnership with CEOs from Quest Diagnostics, CVS, Target and Walmart in attendance. Can they deliver? We don't know that yet, but the market was reassured.

But the stock market never tells the whole story. Wall Street is not Main Street. When we are told to stay at home, when meetings and events are cancelled, that impacts the economy and hurts certain people -- restaurant workers and Uber and Lyft drivers in particular.

When we social distance and stay at home, we're not out spending. (I didn't go to my favorite craft brewery this week, and I'm experiencing withdrawal symptoms.) Indeed, consumer spending accounts for roughly 70 percent of U.S. economic growth.

Jobs at Risk

New research from Deutsche Bank indicates as many as 15 million Americans are at risk of losing their jobs due to the Coronavirus outbreak’s impact on the U.S. economy.

“A significant part of the 15 million would be at risk of losing their jobs,” said Deutsche Bank’s chief economist Torsten Slok. “We’ve never seen non-farm payrolls fall by 15 million from one month to another, but this is like a gradual erosion.”

Those 15 million workers consist mostly of independent contractors, on-call workers, and temp help agency workers in industries ranging from health care to law. They represent roughly 10 percent of the U.S. labor force, says Slok.

“Every time you have a slowdown in the economy, temp workers are the first ones to get hit,” he said. As meetings are cancelled, travel declines and people forgo social activities, like going out to restaurants, movie theaters, gyms, and sporting events, these jobs are vulnerable to a sudden drop in demand.

Also, a survey released last week by data provider ISM shows the virus outbreak has caused supply chain disruptions for nearly three-quarters of U.S. companies, and many are already pricing in revenue losses this year as a result.

Dean Barber is Principal at Barber Business Advisors


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