By Joe Higgins
It is a new way of life in America since February of 2020 and I am trying to make predictions about the U.S. economy while I shelter in place here at my home in Washington. Our economy is opening up, but the news has not made it any easier to gaze into the old crystal ball and tell you what is going to happen.
Economists have always used history to determine the numbers for the upcoming quarter or the year because it is the one tool we have in our arsenal to see our financial future. In this age of the coronavirus there is no history; we don’t know the effects of a virus that has forced millions in America to shelter in their homes, wear masks and avoid human contact. Even doctor visits are done over the internet, food from restaurants is delivered to your front door and your children are attending school in front of laptops.
But there is news and I want to explore some of our economic outcomes through June. I think we all watched as retail sales across the U.S. dropped 14.7 percent in April and then it had a resurgence in May, jumping 17.7 percent. In most states, there were mandatory business closures to control the spread of COVID-19. One of the hardest hit categories in April was home furnishings and décor, but this same industry had a strong rebound in June. This reaction to the virus forced consumers to stay at home and thus consumer spending recorded its worst decline in more than 30 years in April as spending dropped 12.6 percent, an all-time record. However, with the states beginning to open up, it had consumers out spending in May and we had an increase of 8.2 percent, also an all-time record. The signal was clear, consumers wanted to get out, go to stores, do some traveling, eat in restaurants and hang out in bars, which they did. The downside was it produced another rise in cases of COVID-19.
The other bit of good news was that the June employment numbers saw the economy resurrect 4.8 million jobs as many American went back to former careers, but millions more were still on the sidelines waiting their chance to get back to work. It is now self-evident that we have entered a deep recession, but without the structural defects of prior recessions which can prolong a downturn. This time we have to get a grip on the virus that is holding Americans back from normal behaviors, like vacations, going to movies, shopping, etc. Once we achieve that lofty goal, anything is possible. Unfortunately, there was no predicting this one — this pandemic’s impact on the U.S. economy has no historical basis. I have no way to go back and pull up numbers to predict our future. Most states and cities put into effect “shelter-in-place” orders in an effort to slow the shock of the coronavirus, and they literally shut down the U.S. economic engine.
In a recent call I had with Sam Abdelnour, Whirlpool Corporation’s former Vice President, he said “Remember 74 thousand appliances break down every day and have to be replaced, and that will not change. Most of the decline the last two months is construction, remodel and discretionary buys. My fear is too many retailers pay too little attention to the everyday replacements because they are generally lower margin, lower price point and single unit sales. Most independents have gotten very healthy selling suites, premium and super premium packages and have left the replacement to the big box stores.”
I guess some of the best news in our industry, in most states, is that appliance and electronic stores were deemed essential businesses and although your sales were negatively impacted in April, down 15.8 percent, sales in both May and June were very good.
There is no way for me to sugar coat this: America attempted to open up the economy but given the resurgence of the virus in states like Florida, Georgia, Texas, Arizona and California, it has slowed down what we hoped would be a new direction for the economy. Many people thought that online sales would compensate for the receipts that have been lost to traditional retailers but that has not been the case. Sure, department stores, pharmacies, grocery stores and internet retailers like Amazon had a huge surge in volume spiked by sales from toilet paper to cleaning products to pasta to beans, but that didn’t overcome the loss of sales nationally.
So, my bottom line is this: the Consumer Confidence index rose almost 10 points last month to 98.1. This is a strong indicator that levels of consumer spending will continue to increase when fear of the virus subsides. Consumer savings hit an all-time high of 32 percent, a number I never thought possible, and this also points to a strong recovery. However, nothing will happen unless we begin to see a flattening of the growth of the virus — this is the number one indictor today of the outcome of our economic activity. Depending where you have a store, you may see strong sales but not all states will be so lucky. From California to Florida we are facing a monumental challenge. America, however, has defeated greater enemies and I think we can do it again.
As Thomas Fuller said, “it is always darkest before the dawn.”
Sometime this year there will be vaccines, medications and other steps taken that will calm our nerves, it will take a long time before most Americans are comfortable getting on an airplane or sitting in crowded convention halls but one thing I know about the Americans is that we have a short collective memory. We wake up every day to face the world, go out to work so we can bring economic security to our families, this is who we are. This industry is very resilient, you all faced the worst recession in U.S. history in 2008 and 2009 and over the past 10 years we all have participated in a very strong U.S. recovery. I can’t predict what the numbers will be and I certainly can’t predict the long term consequences yet but I at least know this, that with unemployment coming in at 11% in June, it means that nearly 90% of us will have jobs, if your customers cut their spending they will still have to replace products that fail and while many remodel projects will be put off for a few months, most customers will at some point be in your stores planning a new kitchen.
In his quarterly report to stock holders, a very well-known CEO quoted Dr. Seuss, “When something bad happens, you have three choices, you can either let it define you, let it destroy you or you can let it strengthen you.” I know many of the BrandSource members personally, I have been in your stores, I have been with you in tough times and I have watched you weather many storms; I know the extraordinary character that makes up this group. I am confident which choice each of you will make. It is this process that will bring America back, the collective strength of 328 million American consumers and all of our dealers moving to greet our customers with optimism when they walk though those front doors and set our businesses back on course.
Join Higgins Thursday, August 13 at 2:00 PM Central for a live Economic Update Webinar.
Joe Higgins is a 43-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant and public speaker. Visit his website, Quest 4 Quality With Joe, at www.q4qwithjoe.com.