There’s quite a debate about what type of recovery can be expected when the country re-opens. Opinions are all over the map.
Last week, Christopher Thornberg of Beacon Economics presented his annual economic outlook via a Zoom call to the East Bay Economic Alliance for Business. He’s been doing these for about 20 years so he’s familiar with the local economy. He drew a stark comparison between the Great Recession of 2008-09 that was driven by poor practices in the housing and finance markets (remember mortgages based on stated income as well as bundles of sub-prime mortgages sold in the investment market) and this government-imposed shutdown driven by responses to the COVID-19 virus.
The recovery from the Great Recession was so slow because of the underlying problems. This time around, he said that if he presented in February, it would be more of the same story he’d been telling for years—sustained economic growth. A February report little chance of recession for two years but noted that the one threat was the coronavirus.
With most states locking down, the economy has plummeted at never before seen rates with unemployment already topping the Great Recession levels. Thornberg believes, however, given that the underlying fundamentals are strong that there will be a robust V-shaped recovery, not the L-shaped, U-shaped or W-shaped models that other economists are predicting.
President Trump and his economic team would have loved the presentation—it would have been music to their ears.
He also said, “Hysteria is the new norm when talking about the coronavirus.” That’s particularly true of the media with its hyping during the 24-hour news cycle.
The challenge for all economists is there’s no past road map on which to base predictions of the recovery. He posed five key questions: How long will shutdowns last; How deep are the closures; how healthy was the economy before the shutdown; what the government does to intervene; will there be a major shift in post-pandemic spending patterns.
He cited downward trend in new virus cases plus the partial or more reopening of some states. He thinks the third quarter will be basically open for business with the exception of large events (sports, concerts, fundraising events) and air travel (air travel, restaurants and hotels make up 5 percent of GDP). He views most of the job loss as temporary as opposed to the Great Recession and thinks it will be a one-quarter plunge in the GDP with the huge spike in unemployment.
He shared that Chinese consumers already are showing increased activity after the lockdown there. As the U.S. reopens, albeit with different ground rules, he believes there will be substantial pent-up demand. There is no real estate bubble or financial crisis to be overcome this time.
Thornberg is concerned that the government may react too much, although states like California have their hands out to the feds. Gov. Newsom’s May revised budget anticipated a $54 billion hole and proposed at 10 percent cut for K-14 education among other reduction. The Legislative Analyst put the shortfall at between $18 billion and $31 billion based on the pace and shape of the recovery. In a CalMatters article, Thornberg was quoted saying, “It’s just preposterously negative…How can you say that out loud without giggling?”
As he wrapped up his presentation, he cited his continuing concern with the housing shortage in California—the long-term problem that needs to be addressed. It contributes significantly to the high cost of doing business in California—of course, the Democrat-dominated Legislature majors in that with its anti-business bills such as trying to end the Gig economy with AB5 last year.
Incidentally, Chris is eager to return to his office and its face-to-face (mask-to-mask?) interaction and believes, again contrary to the prevailing thought—that there is a future for offices in these work-from-home days.