Well, here we go again. On July 13, 2020, California Governor Gavin Newsom ordered a reversal of the reopening of individual businesses and activities. While printers are considered essential, and thus not subject to closure, many of our clients are not. And, if our clients aren’t working, printers will soon feel the impact.
The truth is, no one knows where this pandemic is headed. In my last blog, I discussed the entrepreneurial spirit and the financial opportunities that emerged during the Great Depression and Great Recession. This time we’ll look to history, once again, to find clues that may help us find a path through this pandemic.
Pandemics of the Past 100 Years
Of all the pandemics encountered by the world’s population during the past 100 years, none has come close to the loss of human life experienced during the Spanish Flu. From 1918 to 1920, an estimated 20 to 50 million people died. It ranks higher than the Hong Kong Flu of 1968-1969, the Asian Flu of 1956-1958, and the sixth cholera pandemic of 1910-1911.
As a numbers guy, the first thing that jumps out at me is the length of each of these events. Each pandemic lasted from two to three years. In fact, the Spanish Flu came in three different waves. The first was in the spring of 1918. A second wave hit in the fall of 1918. A third wave started in the winter of 1918 and ran through the spring of 1919. In many countries, this pandemic continued to the end of 1920.
Based on these numbers, we need to adjust how we’re looking at the length of this current pandemic. We’re upset because COVID-19 showed up in January, and it’s not gone by July.
If we have another two to three years of this current pandemic, while we can hope for the best, we need to plan for the worst. What will your company look like in two or three years?
The Economic Impact of the 1918 Pandemic
According to Efraim Benmelech and Carola Frydman, Professors of Finance at the Kellogg School of Management, the 1918 influenza did not kill the US economy. Benmelech and Frydman say, “The Spanish flu left almost no discernible mark on the aggregate US economy.” This may sound surprising, especially because many governments implemented restrictions on public gatherings and the like during the 1918 pandemic.
Newspapers across the country reported on restrictions from local governments. A page-one article in the October 05, 1918, issue of the Seattle Star read in part, “All churches, schools, theatres, and places of assemblage were ordered closed by proclamation of Mayor Hanson at noon Saturday, to check the spread of the Spanish influenza.”
While restrictions were in place during the 1918 pandemic, several employment sectors remained open. According to Benmelech and Frydman, “the never-ending demand for coal, steel, machinery, textiles, and other products needed for the war effort largely offset the effects of such a severe pandemic on aggregate economic activity.”
According to this research, it seems that government spending on World War I may have kept the US economy, overall, alive during the pandemic of 1918. This may be why President Trump is currently pushing for a major infrastructure bill. He’s hoping that government spending can boost the economy during this current pandemic.
While the US economy may not have suffered during the 1918 pandemic overall, other research shows that, depending on which part of the country you lived, the pandemic reduced manufacturing output by as much as 18%.
Researchers Sergio Correia of the Federal Reserve Board, Stephan Luck of the Federal Reserve Bank of New York, and Emil Verner of the MIT Sloan School of Management took a deep dive into geographic variation in mortality rates. Their research showed that areas of the country with higher mortality rates experienced a sharp and persistent economic activity decline. Mortality rates translated into less need for products and services, a classic case of supply and demand.
In addition to geographic variation in mortality rates, Correia, Luck, and Verner looked into non-pharmaceutical health interventions (NPIs) such as social distancing. They found evidence that “the economy performed better in areas with more aggressive NPIs after the pandemic.”
The research showed that while a pandemic will inevitably lead to an interruption of economic activity, with the implementation of NPIs, “this interruption can be shorter-lived and less extensive.” Thus the use of NPIs reduces mortality rates and reduces the length of the pandemic.
The Current Economic Impact of the 2020 Pandemic
Government spending may help us through the pandemic, but it will add to our country’s mounting debt. Non-pharmaceutical health interventions like social distancing may help slow the mortality rate, but how many businesses will survive the pandemic to see a better economy?
In June, the Deloitte Global Economist Network forecast for US gross domestic product (GDP) envisioned a decline of over 17 percent in the first two quarters of 2020. By the end of July, we saw the actual numbers. Real GDP decreased at an annual rate of 32.9 percent in the second quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. This was the most significant single-quarter decline in GDP since 1947 when the government began tracking the figure using modern methods. What does this mean for your company, your employees, your family?
What will Cause the Economy to Rebound?
As long as the disease remains a significant issue, unemployment will continue and consumer spending will continue to lag. Thus you can expect the overall economic recovery to be relatively slow. But what if the disease became a less significant issue?
According to BBC News, governments worldwide have pledged billions of dollars for a COVID-19 vaccine and treatment options. They hope that a vaccine could help nations get back to “normal.” Drug companies like AstraZeneca say they will be able to produce two billion doses of a vaccine. On that news, the company’s share price hit record highs.
Let’s say that today, magically, there was a vaccine and treatment options discovered. Even if drug companies could produce the medication, how quickly could it be delivered to doctors and pharmacies? How many people would refuse to take the vaccine? Would consumers immediately return to their previous activities? Will movie theaters be full on Saturday night? Will ballparks be full of sports fans? Will restaurants patronage return to pre-COVID levels? I believe that the distribution of the vaccine will take a while. And it will take even longer for the population as a whole to feel comfortable to return to “normal” activities.
How to Survive
While reading the BBC News article referenced earlier, I noticed something interesting. Drug companies like AstraZeneca and Roche have seen their stocks hit record highs, but I know that airline stocks have seen new lows. I’ve seen the same thing in our association. Some printing companies are running 24/7, while other companies are struggling to survive. Why? Their client base makes all the difference.
If your company is struggling, maybe it’s time to review your current clientele. Ask yourself, in the coming years, which companies are likely to survive and thrive because of this pandemic? Think beyond the manufacturing and dissemination of the vaccine.
In November of 2018, San Francisco based Instacart, the online grocery delivery company, was valued at $7.5 billion. By June of 2020, the company was valued at $13.7 billion. The company attributed its growth to an “unprecedented surge in customer demand for grocery delivery and pickup across North America.” Here’s a company that has seen growth while other companies have closed. Instacart may be an online company, but I’m sure they need printed materials.
If you want your company to survive, you must take a look at your existing equipment. Talk with your current employees to review their skills and abilities. Then research and match your strengths with the growth opportunities that are available during and after the pandemic.
This new normal is being formed right before our eyes.
I believe that most of us know that the “normal” of pre-COVID will never return. A new normal is with us to stay. This new normal condition is being formed right before our eyes. We need to decide whether we are resisting the inevitable or are poised to lead this evolution and capitalize on the change.
We can point a finger of blame at the virus and all the “what ifs” bantered about by the press and politicians, but that’s wasted effort. The reality is we have to live in the here and now. To many of us, it feels like our feet are in quicksand, but remember, those who adapt will succeed. Owners must become astute at the practice of leadership. And leadership is all about people, young and old, and understanding their passions and needs. That old thing called “listening” is more critical than ever, as you never know from where the next best idea will come.
I’m convinced that the industry will survive. It will look different, but it will survive and thrive.
Each of us has to decide how we will proceed. Do we change our industry focus? Do we divest or merge in order to fight another day? Do we reconsider actions that we avoided in the past? As I’ve said before, we have assets, whether human or physical, how can you deploy or redeploy those assets? While some of us are fighting to survive, we must realize that we are also preparing for our next successes. I do not doubt that we will overcome.
I’m not saying this will be easy. The next couple of years will be tough. Just as in 1918, the government’s non-pharmaceutical health restrictions will continue. We’ll see some sectors of the economy grow while others slow. The companies that survive will be those that find the opportunities amid this crisis.