From an economic standpoint, life could not have been better for US President Donald Trump back in February. Unemployment was at a half-century low of 3.5 per cent, he had just completed phase one of the US-China trade deal the month before and he was poised to ride the wave of stable economic growth to re-election.
Covid-19 arrived in the US in March and like a hurricane’s destruction, wiped out most of everything related to business in its path. The striking reminder of this is the US unemployment figures for April.
For the sake of our children and the next generation of workers, it is unlikely we will see numbers like that again. While one can get swept up in facts and figures, I find one needs to always pause for a reality check and remember there are millions of faces behind each jobless report.
The great April massacre
For April, the unemployment rate surged to 14.5 per cent. The US on average creates about 125,000 jobs a month during expansion, last month 20.5 million jobs were destroyed. Over the last seven weeks, more than 33 million Americans filed for unemployment benefits — one-fifth of the nation’s working population.
The chief executive of Salesforce, the enterprise software company, said this does not feel like recessionary times, but something much worse. This, Marc Benioff explained, is a 21st century depression.
Opening the money taps
The US president can be accused of reacting to slowly to the Covid-19 threat, possibly losing six weeks if not more living in a state of denial, However, one would be hard pressed to suggest the financial response has been lacklustre — $2 trillion (Dh7.34 trillion) in liquidity, $50 billion for airline bailouts, over $700 billion for worker benefits and that process is not finished yet.
I had the pleasure to meet the author Nassim Nicholas Talib, who wrote the book called “The Black Swan”. As a former options trader, he worked to make sense of highly improbably outlier events that have a severe impact.
What usually follows are overly simplistic explanations for what no one was predicting, Talib explained to me at an event I chaired. His seminal book, all 400 pages is not a simple concept, but he boiled it down for an audience that always needs to make business decisions in a region that presents its own set of constant challenges.
This economic ‘Black Swan’ as many commentators have called it, is more complex. Unlike the global financial crisis of 2008-2010, which levelled financial institutions, Covid-19 is indiscriminate.
Brick-and-mortar companies are being levelled, but so too are the digital names such as Uber and Lyft, which over the last four years revolutionised transport. Uber lost nearly $3 billion in the first quarter, Lyft nearly $400 million and both announced sizeable layoffs.
The once fabled retailer Neiman Marcus, founded in Dallas, Texas, back in 1907, filed for voluntary bankruptcy, at least a dozen others are expected to do the same. Companies that have been around in some cases for a century, were decimated in a two-month window.
Covid-19 is also a complex challenge because it arrived at a very late stage of the economic cycle, a decade after the last recession. G-7 countries were pulling out all their artillery — especially Donald Trump who is up for re-election — to refuel growth and the Black Swan appeared out of nowhere.
In America, analysts are crunching numbers looking to make sense of it all. For example, the retail and food and beverage industries make up just 8 per cent of the country’s GDP, but employ a fifth of the American workforce.
After we learn to live in a post-Covid-19 world, where crowd control and social spacing become the norm for perhaps two years or longer, those jobs won’t automatically reappear. Ditto for the airline industry.
During a private online round-table via Zoom, I was invited to co-chair a discussion with 30 executives who are in search of answers during this once in a generation event. What was scheduled as a 90-minute debate went well over the time limit and raised more questions than answers.
My role was to make sense of the impact this will have on emerging markets and was asked, how does it compare to other seminal events over my three decades of coverage?
My answer — this is much bigger than the global financial crisis that was seeded by fancy derivative products packaged in the west that went on to pollute the banking system and therefore could be, if not fixed, at least put to rest with ample funding and wiser regulation.
Covid-19 is clearly different.
It is global in nature and is striking at least six large developing countries from Brazil to India that make up a third of the global population. It won’t be pretty and that will be the next challenge. However, due to the size of the US economy, the focus is on whether the engine of global growth can quickly recover and go back to normal.
Unfortunately, at this stage, the “new normal” will take much longer to establish and restarting the Great American jobs machine may be more difficult than even the Great Depression of the 1930s.
- John Defterios is Emerging Markets Editor at CNN Business.