By Joe Higgins, Quest 4 Quality
Last week business consultant, appliance industry veteran and AVB keynoter Joe Higgins outlined some unexpected consequences of the coronavirus on the U.S. economy. He concludes his analysis here.
Here’s another interesting effect of the coronavirus that we didn’t expect or at least use in our estimates for economic expansion or contraction: COVID-19 has greatly reduced the time we spend on the highways.
If you have been out on your local highways recently, you may have noticed how easy it is to get in and out of major cities. I myself live near Portland, Ore., and the average commute time has been cut by half.
In fact, over the past six months we have witnessed one of the largest slumps in commuter travel since Henry Ford sold cars to the masses, and economists are estimating that Americans who had been driving to work every day and are now working from home are collectively saving $758 million dollars a day. If you multiply that by all the months of the health crisis in the U.S., it amounts to a cumulative savings of $90.9 billion.
The data comes from a report by Adam Ozimek, chief economist for the freelancing platform Upwork, who said consumers are saving on things like oil changes, auto repairs, new tires, and gas or electric charging, as well as societal costs such as congestion, accidents and pollution.
I would never have guessed that this level of saving, for consumers and the country, could have resulted from a pandemic; it is counter intuitive.
Another anomaly that I find fascinating is that while Americans are buying houses at a record pace and spending more on cars (see Part I), the pandemic is changing other consumer behaviors in ways that could continue for years. Since March we have cut apparel purchases by 47 percent, hotel stays by 50 percent, dining out by 68 percent, air travel by 78 percent, and sports events and concerts by 85 percent.
All that money is not just going into housing and cars, though; Americans are saving cash at historic levels. In the graph below you can see that we are saving money at levels economists never thought possible:
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In April alone the savings rate for Americans was 33.7 percent — more than four times what it was prior to the pandemic. It is a positive barometer that consumers have money to spend, now and in the next cycle. As most BrandSource members have experienced, the appliance, furniture, mattress and electronics sectors are growing dramatically as we spend more time at home and seek to improve our household environments.
The last oddity of our current economy is the federal debt. At the start of 2020 the debt held by the public was $22.8 trillion, and economists were predicting it would grow to about $32 trillion in 10 years. Enter the coronavirus, and now the public debt stands at nearly $26.8 trillion. Many traditional economists believed that a debt so huge would ravage the economy by creating massive inflation and spiking an interest rate increase.
Instead, in spite of the historic rise in debt, inflation has remained below 2 percent and the Fed fund interest rate is .25 percent. This level of government stimulus spending, now approaching $6.6 trillion, will juice the stock market and should help the economy recover quickly. As I have predicted both in my presentations and articles over the past nine years, the size of the debt is not something we need to worry about now or in the immediate future.
Here are the facts: through quantitative easing the Fed has purchased almost $2 trillion worth of Treasury notes; that action has provided the liquidity the Treasury needs to rapidly expand the debt without any serious negative consequences. The International Monetary Fund (IMF), in a directive last month, predicted that foreign governments, pension funds and other investors will continue to buy up American Treasuries even in the face of our staggering debt. As long as that remains the case, we don’t have to worry.
So, where does all this leave us? This is a very uncertain time for our economy, with a discordant collection of variables. With all my classroom and worldly experience in this field, I never could have predicted any of these consequences from a virus, so if you are feeling overwhelmed, you not alone. As we approach the fall, there are more possible impacts from COVID-19. Will it still be with us as a part of the first wave? Will there be a second wave? Will colder weather and spending time indoors create more cases, which will lead to more hospitalizations and deaths? Will there be a seasonal flu along with coronavirus, resulting in a possible “twindemic”?
If there is such a thing as good news during a pandemic, it’s that the appliance, furniture, electronics, bedding and home remodeling categories will continue to grow. At least what my crystal ball is telling me today. Good luck and good selling.
Joe Higgins is a 43-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant and AVB keynoter. Visit his website, Quest 4 Quality With Joe, at www.q4qwithjoe.com.