COVID-19 WINNERS AND LOSERS

I have considered the information from the Center for Disease Control (CDC), which has stated that the virus is new and no one has the antibodies to ward off the infection.  Combine that with the estimate of 40 million will be infected if an inoculation is not made available within the next 13-18 months.  The current mitigation efforts will only slow down the potential for the large numbers and without a therapy eliminating or moderating the virus, it will continue.  The virus currently indicates it has a mortality rate between 1 and 1/12% of those infected, which makes it 10 to 15 times more fatal than the annual flu.  With all that in mind one must consider how the economy will react to a continued threat until the virus is contained and has no threat of recurrence.

Since the opening up of the Asian markets, first Japan after the war and then China, the United States offloaded their manufacturing to countries with large excesses of cheap labor, in turn, the U.S. has become a largely service economy. A normal economy has about 2 ½ service employees for each manufacturing or production job.  The United States has 4 service jobs that support factory employees. This makes impact on the United States economy twice as bad as other countries.  Most aspects of a service economy will only slowly become active after the pandemic is over.  Consider you go to the movies and eat out once a week, then the pandemic came and a stay at home order lasts 12 weeks- you did not go to the theater or the restaurant  12 times.  Are you going out to eat or to the movies 12 days in a row? Once it is over some sectors will not recover all at once.

The obvious economic lagers will be Sporting events, concerts, theater, conventions, and other venues where people are in a confined space and no way to keep social distance. There will be no pent up demand for these services after the end of the pandemic without the cure.  Travel is the other service sector, which will be slow to recover.  Air and Sea travel includes the petri dish atmosphere ripe for transmission of the virus.  None of the above sectors will fully recover for years for the reasons stated above.

Other sectors like Hotels and Motels will also suffer for fear of the virus within the room.  Venues like Disneyland, Universal Studios and other theme parks will suffer.  It is difficult to imagine, and I won’t even try to speculate on how individuals will respond to religious services.

As can be seen, demand for services does not become pent up and recovery will be very slow for the service sector.  The service sector during this pandemic is in economic limbo and as a result, the startup will be slow and will never recover the lost time and revenue from that timeframe. Small restaurants and service organizations will have closed and will be slow to return perhaps with new ownership.  Mall shops will suffer as well as Shipping and transportation related services due to the lack of demand for goods other than food.

The bailout, as stated, was 2 trillion dollars or about 5,600 for every man women and child.  This does not include another 450 billion dollars the treasury will turn into another 4 trillion dollars by printing (borrowing it from themselves) the money and giving it out to corporations as loans with some being outright grants without payback.  If the industry fails after the loan, who pays?  This 6 trillion is a burden of $16,800 per person. Upon signing the law,  Trump stated his concern about the oversight and felt he may not fully comply.  That gives Sec. Mnuchin full authority over the 4 trillion dollars with minimal oversight- What could go wrong? My prediction of what is to come: double digit inflation within 1 year after the pandemic is over.

The inflation will occur as a result of the pent up demand and a lack of interest in the service economy and the personal savings as a result of the pandemics isolation.  The winners

will be the sectors that do not require close contact such as the Hardware and furniture stores and home improvement contractors. The demand for these will outstrip the supply due to the disruption in the supply chain.  This with dissolving inventory supplies will create shortages.  The anticipated inflation may persist. 

The medical insurance industry has stated they anticipate a 40% rise in premiums as a result of the pandemic.  The food production industries, farms and ranches, are minimally impacted.  The Automobile industry will be slow to recover as well due to supply chain disruption and may new models may be delayed.  This could put upward pressure on Automobile manufactures.  The only way some in the service industry sectors recover is to raise prices creating the temporary inflation.