COVID-19: The Economic Impact

COVID-19 has become the biggest healthcare crisis of our lives. For more reading on the healthcare impact, check out my other essays on COVID-19 (The Perfect Storm, for example, and Doubling Curves).

In addition to the healthcare crisis, it may also become the biggest economic crisis of our lives.
You may be asking “what does economics have to do with the COVID-19 healthcare crisis?” People can only stay home and quarantine as long as they can afford to do so. If someone has to make the choice between a paycheck and a quarantine, some will choose a paycheck. As long as there is a financial need that is in conflict with the quarantine need, some people will not observe the quarantine, and the COVID-19 pandemic will continue.

Here are some of the economic effects that will occur in the next several months:

Unemployment claims-this is the most important effect of all. Last week (March 26, 2020) 3.3 million Americans filed for unemployment. This demolished the previous records (665,000 in March 2009, and 695,000 in October 1982). Unemployed Americans cannot afford to purchase any of the goods and services listed below. More bad unemployment claims numbers are expected to be published on Thursday April 2, 2020. Pennsylvania, Oklahoma and Colorado are reporting that in-week claims have risen from the previous record-setting week.

Healthcare Systems: Hospitals are going to be overwhelmed with COVID-19 patients. Some already are. As I type this (March 30, 2020), a field hospital is being built in Central Park to take care of COVID-19 patients. We will be treating patients in a tent. These are war-like conditions.

In addition, we are going to lose healthcare providers to this plague. May God bless those physicians, nurses and others who give their lives in order to provide patient care.

Insurance companies: the cost of providing the intensive care that we will be providing is not sustainable. Insurance companies, hospitals, and other payers will not be able to afford the cost of what is ahead.

Retail: Over the weekend, several retail giants (e.g. Nike) announced that they will not be able to make their monthly rent payments for their stores. This is going to be a growing issue as retail stores remain closed. One of the largest employers (and sources of tax revenue) in my area is the King of Prussia Mall, the largest mall in the United States. That mall is empty right now. Malls operate on very tight margins. I wonder what the King of Prussia Mall will look like in 3 months.

“Mom and Pop” stores: any small business that relies on face to face customer traffic is at risk. Think about your local “strip mall” (small retail outlets), and consider all of the dry cleaners, hair salons, fitness studios, and other businesses that rely on face to face contact in order to stay in business. Many of these will not survive 2-3 months (or more) of a shutdown.

Travel-the major airlines (United, American, Delta and Southwest) operate on small margins, and rely on flying full airplanes in order to make a profit. I don’t see all four airlines surviving this.

Hotels: like the airlines, hotels rely on being at full capacity to make a profit. The big chains (Marriott, Hilton, Hyatt, etc.) have laid off tens of thousands of hourly workers.

Restaurants: big chain restaurants (e.g. Cheesecake Factory) have announced that they will not be able to pay their April rents to their landlords. As we stay home in isolation, big and small restaurants (who are not able to provide delivery) will go out of business.

Real Estate: this is a very difficult time to be invested in real estate, either commercial or residential. Commercial real estate (through Real Estate Investment Trusts, or REITs) are going to struggle as their tenants default on rent payments. Residential sales and purchases are beginning to slow as well. I believe we could see another mortgage meltdown as people default on their mortgages in increasing numbers.

Entertainment: have you gone out to see a concert or a movie lately? I didn’t think so. All major concert tours for the spring and summer are cancelled or postponed. All of the employees who make those tours a reality are out of work.

Sports: every major sport has postponed or cancelled its season, or its preparation (pre-season). That includes MLB, the NFL, the NHL and the NBA. All of the arena/stadium employees are affected by those delays and cancellations.

Automotive– the big car companies (GM, Ford, etc.) rely on car sales to stay afloat. GM has started making ventilators for COVID-19 patients instead of making cars. I would be surprised if all of the major automotive manufacturers remained in business.


%d bloggers like this: