As the country continues to shelter in place and workers adjust to the “new normal” working environment, we are beginning to see the peak of the Coronavirus pandemic in the US. As an optimist, hitting the peak means we can all start seeing the light at the end of the tunnel. One of those lights is the economic recovery.

That leads to the most important question:  What kind of economic recovery are we going to have?

While economists will look at the macro level and GDP data will tell the story as it has in past recoveries, this one is going to be different…a lot different.

Economic Alphabet Soup

This pandemic has impacted companies in so many different ways, which makes it unlikely that they will all experience recovery the same way.  It won’t be one-sized-fits-all. The “letter” assigned to this recovery will be at the individual company or market segment level and I see there being more “letters” than ever before.

“V-Shaped” – This is the theory that our economy had great fundamentals and when we open it back up, America can pick up right where we left off.  The group of industries that will experience the V recovery include:

  • Retailers
  • Auto sales
  • Electronics
  • Home improvement,
  • Personal services, etc.

Gosh, I would not be surprised if making an appointment to get your hair cut will be harder than getting a table at the trendiest new restaurant in town!

“U-Shaped” – With this recovery, it takes a while for things to get back to normal.  And if you look at the economy as a whole, this is what most analysts are settling on. While there will be pent up demand for haircuts and nail salons, for other industries, not so much.

One example would be dry cleaners.  Since we all aren’t going to go back to work at one time and maybe more of us work from home more often in the short term, we have less need for these services.  The Cruise industry will likely bounce back, but not immediately.  Same goes for major events like conferences and live attendance at sporting events (except, of course SEC college football as most believe gameday and tailgating are just large family gatherings!).  Movie theatres will come back slowly, but there may be limitations as to how many can attend or want to attend.  That said, we love our movies and we will eventually go back.  (Sounds like we need a new release called “Star Wars – the COVID-19 Revival”)

“I-Shaped” – Yes, the economy is reeling and as of April 10th, 16 million people have filed for unemployment.  But for some industries, revenue is going straight up:

  • Grocery stores
  • Trucking
  • Shipping
  • Warehousing
  • Toilet paper manufacturers (crazy…)
  • On-line retailers
  • Healthcare staffing
  • Video conferencing

These industries are breaking all-time records week over week. There is no ‘recovery’ necessary!

But, there are all sorts of industries who are poised for an “I-shaped” recovery upon the economy’s reopening:

  • Office cleaning services and products
  • Sanitation
  • Medical supplies
  • Plexiglass providers
  • eLearning platforms
  • Telehealth solutions

These will all see huge (and likely sustainable) spikes in business as we simply become a cleaning-obsessed society to ward off future viruses.

“L-Shaped” – Unfortunately, these are going to be the casualties of the Coronavirus pandemic of 2020.   These are businesses that could’ve been doing well or hanging by a thread.  Maybe it was a promising boot-strapped business that had a great idea and vision but was under-capitalized. Or a boutique hotel that couldn’t afford its rent without any travelers. They simply won’t be able to weather the storm.

Where I see the biggest losses will be in certain VC and PE backed companies. Such businesses are often well under 500 employees, but don’t qualify for SBA assistance because of the so-called “affiliate rule”.  Yes, many of the VC and PE firms have emergency reserve funds, but I don’t see them using those monies equally across their portfolio.  Absent any help from the SBA, VC/PE’s are going to have to resort to “selective resuscitation”, choosing only certain companies to receive their support.

The Mostly Likely Recovery “Letter“

“C-Shaped”  –  In this model, C stands for Consumer.  (And it’s only coincidental that C is also for Coronavirus and Covid-19!)

The Consumer is, and will continue to be, the biggest beneficiary of this pandemic. The US consumer will have more disposable income to spend on things that will actually now cost less than before.

Say What??

I know what you’re thinking. With 15 million people filing for unemployment (and that number sure to rise), how can I say that? Look, it just makes sense. Prior the pandemic, we had 140 million people working.  That means 125 million are still working and almost all of them are spending a lot less money.  They aren’t paying for gas, dry cleaning, movies, day care, going out to dinner, clothes shopping, vacations, travel, parking or bar tabs.  Even those who are commuting are paying less for gas!

While most of those still employed are receiving a full paycheck, virtually all will be getting stimulus money ($3,400 for a family of 4 making under $150K) this month and maybe even the same amount again next month. That is equivalent to $40K extra earnings per year on an annualized basis.  Even my 83 year-old mother on Social Security, with zero financial impacts from Coronavirus, will be getting $1,200 because she filed a tax return last year.

While I empathize for those on unemployment (as nothing replaces the dignity of work), the vast majority of them will be made whole…and then some.  A person working 32 hours a week, making $15 per hour ($480 per week) will get regular unemployment of about $275 plus an additional $600 thanks to the stimulus package.  That is $875 per week without the expense of having to go to work!

(The bigger issue for the economy will be getting these people back to work for less money than they made being unemployed. But that’s a whole other article…)

So let me summarize the situation after the crisis passes:

  • Goods and services cost less
  • Employed Americans have more money
  • Unemployed workers are well-compensated

They’ll have:

  1. Cash
  2. Capital
  3. Credit

With the C’s of economics, there will be a lot of people with a lot of extra disposable income.

And this is why I believe that Consumers will lead the economic charge to recovery.

What do you think? I’d love to have a discussion about it.

This article was originally published on the LinkedIn Pulse and can be found here.