When the coronavirus crisis eases, the economy will recover — but what sort of recovery will it be?
Something of a parlor game is afoot, as economists, pundits, and business and government leaders search for a way to visualize the possibilities.
Many economists track gross domestic product and jobs to gauge the growth of the economy.
Some are turning to letters of the alphabet in trying to forecast the recovery.
Will the recovery look like a “V” — fast down and fast up?
Or a “U” — down, flat and up again?
A “W” — down and up, and down and up, if the virus reemerges a few months from now and we have to huddle at home?
And the worst prospect — an “L” — down and flat for a few quarters or years?
Here’s how five San Diegans in the know think the recovery will shape up. Nobody sees an “L” — a lengthy lull.
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• 1980-82: The Iranian Revolution and oil embargo followed a few months later by high inflation and high-interest rates. Nevin called it a “long U,” while other economists said the double-dip looked like a big “W.”
• 1990-91: The ‘80s recovery, characterized by “irrational exuberance” on Wall Street, ended with a spectacular stock market crash in 1987 and failed banks. Another “U.”
• 2000-01: The booming 1990s ended in the “dot-com bust” in 2000-’01 when Internet-driven startups flourished and wilted, and the Sept. 11, 2001, terrorist attacks. This “lower-case V” recovery hurt Wall Street but didn’t batter employment as badly, Nevin said.
• 2007-09: Then came the Great Recession, prompted by loose lending and a housing bubble, that led to failed investment banks, government bailouts and high unemployment. Nevin’s letter: a very wide “U.”
• 2020-: Ten years of unprecedented employment growth and prosperity for most Americans ended abruptly in March with the Covid-19 outbreak and instant recession that’s putting millions out of work.","items":[],"theme.00000166-300c-ddc8-a177-f44f8d870000.:infobox:Infobox.hbs.imageTransformation":null,"theme.00000166-300c-ddc8-a177-f44f8d870000.:infobox:Infobox.hbs.leftAlignTitle":true,"theme.00000166-300c-ddc8-a177-f44f8d870000.:infobox:Infobox.hbs.leftAlignDescription":true,"theme.00000166-300c-ddc8-a177-f44f8d870000.:infobox:Infobox.hbs.leftAlignLinks":false,"theme.00000166-300c-ddc8-a177-f44f8d870000.:infobox:Infobox.hbs._template":null,"_id":"00000171-89bf-d367-a377-ebffb1480007","_type":"1bd71488-cfff-3e76-bbca-93f270e46b6e"},"theme.00000166-300c-ddc8-a177-f44f8d870000.:core:enhancement:Enhancement.hbs.alignment":"align-right","theme.00000166-300c-ddc8-a177-f44f8d870000.:core:enhancement:Enhancement.hbs._template":null,"_id":"00000171-89b3-d405-afff-fbb7e5770000","_type":"c5b60bfe-fc18-3e1d-bd70-75608e803f66"}”>
ALAN NEVIN
Director of economic and market research, Xpera
Recovery shape: “Lazy V”
“I’ve been through six or seven recessions and this one is completely different, mainly because it’s beyond our control.”
As officials ponder when to restart the economy, Nevin said consumers need to be reassured that it’s safe to resume their normal lives.
“We have another 45 days before consumers feel they have the confidence to come back out,” he said.
But he said not to expect a dramatic upsurge of business once the stay-at-home-orders are lifted.
“I certainly believe that it went down a hell of a lot faster than it will come back up.”
In California’s favor, he said, is milder weather and less density.
“The people back in the northeast are a lot older than us young kids out here in California,” he added.
And so the state ought to recover faster than many other states and regions. But not uniformly across all sectors.
“Tourism won’t recover as quickly,” he said. “That’s going to take until the fall when they start running cruise lines.” He called it “remarkable” that bookings are already strong in the midst of a pandemic and hit cruise ships hard.
For conventions, it will be harder to restart because of the logistics involved in holding large meetings. “It’s going to take them until September to gear up,” he said.
One concern he expressed that applies uniquely to San Diego is the return of commuting workers from Tijuana, who are active in the hospitality and construction business.
“There’s 20,000 a day who will come across for a job when the job is there — most of them are hourly workers,” he said. “They’ll be coming back, but I think (President) Trump will really crack down on ordinary Mexicans coming here. The rich ones will still come back here if they own property. The others — I think it’s going to be a tough road. There will be a major shortage of Mexican labor. We’re already seeing that in construction, because Mexicans can’t get here.”
As for what letter he would associate with the coming recovery, Nevin chose what he called a “lazy V”— steep on the left stroke and leaning down on the right.
“I think it’s a ‘V’ but not a near-term ‘V,'” he said. “I don’t think it starts at the beginning of May. I think it’s at the beginning of June.”
LYNN REASER
Chief Economist, Fermanian Business and Economic Institute, Point Loma Nazarene University
Recovery shape: “Mountain, valley and upward climb”
“Characterizing recessions and recoveries with a few letters of the alphabet is too simplistic to capture the dynamics of the economic downswings and upturns we have experienced in the past and are now facing with Covid-19.”
Reaser said the stock market serves as a leading indicator for what might transpire in the coming months, but she focuses on employment figures. There will be job gains this summer but they will not undo all the layoffs that have occurred already.
“By late this year and into early 2021, the economy’s recovery speed is likely to quicken,” she said. “A Covid-19 vaccine would put the recovery on truly solid footing, but such a vaccine is probably at least a year away. Effective testing, quarantining and ensuring that only ‘safe’ people are working or shopping would be an important substitute.”
Reaser offered a more nuanced analogy for what lies ahead:
“The current economic decline is like a steep fall from a tall mountain. Then it may be a short, level valley as businesses start to reopen. Virus outbreaks might cause this landscape to be transformed into a series of rolling hills. The path on the other side will be less steep than the descent, allowing bursts of speed, although it will be an upward climb.”
RAY MAJOR
Chief Economist, San Diego Association of Governments
Recovery shape: “Long V”
In a report issued earlier this month, Ray Major told the SANDAG board that mitigation measures to contain the virus are likely to last three months, ending June 15. But then it could take another two years — until July 2022 — before the local economy, as measured by sales taxes, returns to the level expected if the virus had not developed.
It might have been much worse.
If mitigation didn’t end until Sept. 15 and the recession and its aftermath lasted until July 2030, the tax loss could 10 times as much.
Major said San Diego’s economic future will depend on how its various sectors behave in the coming months and years. Tourism represents a bigger share of the local economy, about 34 percent, than in other regions.
But the considerable losses already evident in vacant hotels, convention cancellations and minimal visitor spending are offset by the region’s largely unaffected military sector and continued strength in biotech, health care and other industries.
“There are a lot of businesses, probably 66 percent, that are weathering the storm relatively well and many of those have figured out how to do business via telecommuting,” he said. “We will continue to muddle along and as we open up the economy and get people back most of their work, most of the economy will recover relatively well.”
But businesses and their employees who can’t work at home will suffer that much more.
“One out of three residents are very much struggling,” he said.
Major said he believes the local recovery will resemble a “long V” — a sudden drop followed by upward but less energetic return.
“I’m optimistic because there was nothing wrong with the economy,” he said. “It’s like driving an automobile and you get a blowout. We pulled the car over to the side and turned off the key. We should be able to turn the key and get back on the road. How long to get up to 65mph? I don’t think it’s a four-year recession.”
NORM MILLER
Hahn chair of real estate finance, University of San Diego
Shape of recovery: “Slow Nike Swoosh”
Miller compared San Diego to other heavy-tourist-related regions and found that at least in of home listings, San Diego is faring better than Orlando, Las Vegas, Nashville and other spots.
But he said as some homeowners are forced to sell to keep their small businesses afloat or to their families, defaults and foreclosures will likely rise and investors will swoop in to search for a deal — just as occurred during the last recession.
Construction is slowing, even though it is not subject to stay-at-home orders, because workers, especially those commuting from Tijuana, are scarce and construction supplies not as readily available.
In the commercial office market, landlords might take steps to accommodate more work-at-home employees, formerly 12 percent of the office workforce, in the future, perhaps 20 percent.
In-store retail sales, currently out of the question in many businesses, could transition even faster to online transactions and curbside pickup.
Miller describes his vision of the recovery-to-come as a “slow Nike swoosh,” a symbol that looks like a checkmark.
“I do think we will be able to open up the economy by June 1 in a place like California, and hopefully earlier,” Miller said. “But it won’t be a full opening. It will be a partial opening.”
He added, “That will take us into the first quarter of next year before we’re 90 percent back. And I think employment probably will lag for the next year and a half because of people laid off that won’t be rehired.”
JOE TERZI
President and CEO of the San Diego Tourism Authority
Recovery shape: “Stair steps”
“The interesting thing about tourism is it’s typically kind of the canary in the coal mine. It’s the first impacted. It’s immediate. As things start to return, it’s one of the things that come back quick.”
But this revival will be different: “You know how quick the industry went out — it won’t be nearly as quick coming back.”
Even though many hotels are virtually empty — some have become homeless shelters — and San Diego’s main attractions have closed down, Terzi is already mapping a recovery campaign.
“It’s totally different in what we do: It’s in-state, high-drive markets,” he said. “We’re not advertising on the East Coast, not in international markets. We’ll spend a tremendous amount of our available resources in the state, north to south, Arizona, Nevada, a couple of other drive states.”
Although conventions continue to be canceled week by week, Terzi hopes the large fall meetings will remain on the calendar. On Friday Comic-Con announced it was canceling its July convention for the first time ever. The event, which attracts 135,000 people over a four-day period, delivers an economic impact approaching $150 million.
Terzi doesn’t think of a letter in how to describe his industry’s and San Diego’s economic recovery. He thinks of stair steps.
“It’ll start, then see a bump and level off,” he said, and after a while it will become a steady climb back up. “From our standpoint, I think the industry will recover, it will be over, and there will be a stepped approach than a step up.”
Roger Showley is a freelance writer in San Diego. He can be reached at [email protected] and (619) 787-571
