A common phrase heard in last few months is that we are "living in a new normal." A quick and dirty way to understand the difference between "new normal" and "old normal" is provided by business writer, Kenneth Rapoza in today's essay.The bottom line seems to be that just as you can't go home again, we won't be going back to the old normal again. If this is the (fair & balanced) financial reality, so be it.
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Three Things To Expect In The "New Normal: Post-Pandemic
By Kenneth Rapoza
TagCrowd Cloud provides a visual summary of the blog post below
Some say the “new normal” means we are going to be surveilled to smithereens, and that life post-pandemic will never be the same. We’re all OCD now. Old and young will never be together. Hugs? Kisses? Disgusting.
Others say that eventually people will grow tired of washing their hands umpteen times a day, and life will return to the old normal, pre-pandemic. Grandparents and grandkids will be together again. You can visit your parents in a nursing home without fearing you’re asymptomatic and might spread the new SARS virus
But those debates about social interactions are for the political and social science crowd.
The market has three things its debating among itself. When it comes to life post-pandemic, three are top of mind.
1. More Saving, Less Spending
If there ever was an example of why people needed a rainy day fund, this pandemic and the resulting “stop the world” moment demonstrated that in spades. Investors expect consumers to save more, having spent the last two months spending almost nothing. They might have gotten used to it. Lower overheads, some will realize, is better than staring at the unpayable credit card balance each month.
“One of the prevailing theses regarding consumer behavior in a post-quarantine world is that individuals are likely to be a bit more conservative with their spending,” says Glenmede investment analysts led by CIO Jason Pride in a client note published on Monday.
This would be consistent with prior economic stress periods, as the aggregate savings rate increased 2% annually during the 2008-09 financial crisis. If savings rates do go up as part of the new normal, then consumption will be trimmed by $500 billion through the end of 2021, Glenmede strategists believe.
A survey released Monday by McKinsey & Company suggests Americans will remain financially conservative in the new normal. They expect to reduce spending on discretionary items. How long? Unknown.
The survey shows that only 36% expect an economic rebound this summer.
2. New Supply Chains
The pandemic taught everyone that we are too reliant on China. Why does China have to make, literally, everything. Need ibuprofen? Can’t. China needs them all. Doctors need those suction cup like masks known as the N95? Can’t. China has them and can’t make them fast enough. Need personal protection equipment gowns for your nurses? Sorry, China bought them all in January. You’ll have to make them yourselves. Need to inspect your sneaker maker factory? Can’t. China not letting your Singapore based auditor to travel where you need them.
Japan has had it. They’re offering their multinationals $2 billion to repatriate and $200 million to leave mainland China; not fully, but at least diversify off the mainland.
There may be serious considerations given to diversifying supply chains and bolstering online service capabilities, as well. In general, some larger firms may have more flexibility to move quickly, depending on what they are making. Making locally and selling themselves as “not Made in China anymore” may be a marketing advantage. Wait for the first Nike NKE (or equivalent) made in Compton or Detroit. Maybe it will have Snoop Dogg’s signature on it. People will spend $200 for that shoe.
“What I’m hearing is that companies are just reacting to the situation at the moment,” says Bill DeMartino, chief customer officer at RiskMethods, a supply chain risk management solution provider based in Massachusetts. “Some companies have gone through a fast track process – instead of looking at all of their compliance issues, they’re just moving quick to find someone new and maybe more localized,” he says. “My sense right now is that we are not going to abandon existing supply chains, but we are going to take a step back and think about the cost of the risk in being so vested in China.”
3. Small Business Looks Scarier
The new normal post-pandemic means small business life looks scarier.
Right now, trial lawyers and ambulance chasers are busy filing suits against businesses opening up before quarantines are lifted, citing a danger to public health. Others are suing nursing homes
This becomes a whole new insurance risk going forward — making sure someone doesn’t try to sue because they went into your store and came out with a 101 fever the next day. It won’t just be individuals suing over wrongful deaths, it will be the big non-profits, too. It will be seen as a way for some to raise awareness of their organization in the media, and raise money through donations from like-minded individuals angered by the different pandemic responses across the states.
Legal risks and lockdown actions have rattled small businesses. Small businesses’ share of employment varies by industry, but the industries most vulnerable to the outbreak such as restaurants, entertainment venues like Broadway, sports arenas, theme parks, hotels, and professional event organizing are run by small to mid-sized companies. They account for at least 15% of all small business jobs.
Post-pandemic, with many employees earning as much or more on unemployment temporarily, some might not be eager to get back to work. That could mean businesses might not find the staff to be fully functional, even if the economy is firing on four cylinders by July as Treasury Secretary Steve Mnuchin is predicting.
Glenmede thinks labor markets will be increasingly skeptical of working for small businesses, given that their aggregate lack of resources to retain workers has resulted in mass layoffs, and the expected second wave of infections next winter could put them in the same boat in 2021. Who wants to go through this again?
China, the global epicenter of the new SARS coronavirus, is not expected to do much better. The command-and-control economy can only do so much. Not everything in China is run by the government.
Absence of more forceful and swift policy response in China, many small businesses in the consumer services sectors will go bankrupt. The new normal for them will be rising unemployment in a country with a perennial unemployment rate of 4%.
Last week, China’s state media reported that the much-anticipated National People’s Congress meetings would kick off on May 22, after a two-month delay due to COVID-19. The announcement was a confidence-booster, signalling that Beijing is comfortable enough with the health risks to allow for a gathering of more than 3,000 communist party officials. That’s China’s establishment all in one room.
Markets are expecting a Great Financial Crisis-like response from Beijing to come out of that meeting.
Meanwhile, new infection cases in China continued to hover at low single digits. Fears of a second wave there have not been borne out. Asymptomatic cases were at their lowest since the reporting started a month ago. If China’s numbers can be trusted, and few do, then there is some evidence that the virus eventually runs its course and stops being such a terror.
Beijing, Tianjin, Hebei and Hubei provinces became the last four provinces to lower their public health emergency response level to level 2 from the highest level, which is level 1.
Beijing recently removed their 14-day quarantine requirement for visitors from low-risk parts of the country. That’s another sign of the old normal returning.
“Immediately after the announcement, ticket reservation for flights to and from Beijing surged,” says Aidan Yao, senior emerging Asia economist at AXA Investment Managers.
That’s good news for China, which has been dealing with this pandemic since January. The first SARS lasted from November 2002 to July 2003, or roughly 8 months, and then largely disappeared.
If the new normal holds for the new SARS then it means it will be back, unlike the first SARS. That’s as bad for China as it is for the rest of the world, especially if it comes back with a vengeance.
If that is the new normal, the small businesses in China that are just getting back to some semblance of normalcy would be crushed.
“The sad truth is, absence a more forceful and swift policy response, many small businesses in (China) may not be able to survive this pandemic,” Yao says. ###
[Kenneth Rapoza is a Senior Contributor at Forbes magazine. He also has written for In These Times, Barron's, magazine, Wall Street Journal, and the Washington Times. He received a BA (literature) from Antioch College (OH) and an MA (communications) from Norwich University (VT).
Copyright © 2020 Forbes Magazine
This work is licensed under a Creative Commons Attribution 4.0 International License..
Copyright © 2020 Sapper's (Fair & Balanced) Rants & Raves
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