E-letter: Opportunity in change

One basic rule of economics that every business owner should know is that when there is a recession, most businesses that fail don’t fail during the fall. They fail during the recovery. There are many reasons for this, but basically people have maxed out their lines of credit, cut all the costs they could and reduced inventory. When the economy rebounds, orders come in but they can’t get credit, can’t get materials, can’t hire labour and can’t deliver, a competitor steps in, customer are lost and another business gets shuttered.
Kerry Knudsen
That’s the negative side. It’s a call to strategize — planning — to balance human, material and fiscal resources against an uncertain breakout period.   There are, however, significant upsides.  First, despite the plaintive cried of the media, we are not in a recession. Check the definition. To qualify as a recession, we need to have two consecutive quarters of negative growth. Granted, we may be on our way, but we are not there, yet. Assuming we meet the technical definition of a recession in coming months, and we may, the economic fundamentals before the shutdown were solid. Going into a recession, they are not. That is why recessions happen. Taking a look at fundamentals, the GDP — what can we say? — the GDP stinks. That’s why we may be going into a recession. However, the stock market is alive, if up and down. As of presstime, it seems inclined to be up, but these are uncertain times. In any event, the market has partially recovered from its steepest drops so far and is likely to be giddy if the transition out of the shutdown shows promise, a vaccine is approved, a treatment is discovered, etc. Uncertainty, I guess, is the new certainty. Real estate and durable goods seem solid at the moment, and low gas prices should help limit costs going forward. Another driver of economic data is the unemployment rate. Allowed to run free, that alone, could drive panic. It is not good. However, the unemployment rate is generally viewed as jobs lost. In this environment, it may be better to view many or most of them as jobs paused, although that is not a current category. Others may show up as jobs moved, although that is not a current category, either. People that once were employed in such a Covid-vulnerable position as hospitality or entertainment may be ready to find something more stable. Factory work may not be pretty or have such nice uniforms, but right now it offers a good chance of work. One thing I keep wondering is how this new protocol for restaurants is supposed to work. All the media and government seem content to propose that restaurants can all open up with half the seating. I am not a restaurateur, but my knowledge of the business side says you need to sell each table so many times during a shift at such-and-such a rate or you go out of business. I also understand that food service is a very competitive and unfriendly business, and most establishments simply cannot take a 50 percent hit in revenues. Big surprise. Neither can trade magazines. Neither can floorcovering suppliers — not that I know of. There may be a slight up-side if you need to pay down debt in coming months. It looks to me like a certain amount of inflation is inevitable. The pundits seem to disagree, but what do I know? They say tometo; I say tomato. However, if there is inflation, and if we can avoid getting into variable-rate loans, it may ease some of the pain.   Another, tangential, matter is that during this situation there have been two kinds of people — people that are getting a check and people that are not. Among the people that are not missing a payday are the public-sector unions, NGO staffs, corporate employees and officers, etc. Among those not getting a check are, unless I miss my guess, you. The idea that small-business owners will have to work harder for less so we can help the leisure classes drift and float may become more than we can bear. Finally, one good friend and confident observed last week that, “A lot of people are going to get rich from this.” I wish I could say I didn’t believe him, but I can’t. If that happens, and if it is visible and reported by our drifting and floating media, I predict some people are going to get really, really, mad. I am one that believes there is opportunity in change, so I think we should do some research. What may be some new trends, will the supply chains of recent years remain intact, will building permits and starts respond to pent-up demand and will there be upward or downward pressure on labor resources? All good questions, in my opinion. I wish I had the answers, but I think we can make some good guesses. It all goes back to planning.

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