US economy has taken a massive hit since the COVID-19 virus outbreak. As the market tumbles down during lockdown, we have really seen it all: stimulus check, multiple ongoing bankruptcies, and the highest unemployment rate since 1940 at 14.7%. The gains of job creation in US over the past 60 years have been erased in just a month.
“But wouldn’t it all fine if we just get the vaccine?”
As dreamy as that sound, I highly doubt the possibility of a “V-shape” recovery after the pandemic. Looking back at the recent two years, we have to note that:
- In 2018, China’s GDP growth rate hit 28-year low, with gross domestic product expanding 6.6%, down 0.2 percentage point from the previous year.
- In 2019, the U.S stock market had the lowest trading volume since 2008.
I view COVID-19 as a triggering point that releases the tension accumulated within the US economy. So where is all this going? Immediately, we see a liquidity issue. According to AARP and Womply, more than 20% of the small business cannot last longer than one month of shutdown. The Gov pumped $1200 into every Americans’ deposit account trying to keep the economy running. But the impact keeps getting minor as the lockdown persist. It help fed some families, but sure left the small businesses in the dark.
In the April survey done by facebook, 1/3 of U.S. small businesses have stopped operating among 86,000 small/medium business owners, with many citing an inability to pay bills or rent. Additionally, another 11% expect to fail in the next three months if Covid-19 conditions persist. This is more serious than a a liquidity issue of the market.
The Fed did the Fed thing. Interest rate was cut to almost 0, which allows Business owners to fill up their gap with even more debts. However, the Fed can print all the US dollars in the world, but they can not print jobs. Without real demands from the market, the liquidity issue could and is already starting to turn into an insolvency issue. Sadly, the demands is not going to look too great.
“Oh man maybe I should’ve saved so I wouldn’t have to suffer”, “Oh man maybe that car payment was not necessary.”
Larger than expected portion of US households are suffering lack of cash. 53% of the household have ZERO emergency savings(AARP). I am sure many Americans will perceives money differently after suffering through this pandemic. To some extend, the idea of “Consumption-driven Economy” might be challenged for first time in many years. The balance between efficiency and resilience would have to be readdressed on the household, business, corporate and higher levels.
Have the good old “Consumption-driven American” already fall, or did we just begin?
LeoQuidity 