MUSINGS OF A CEO

These days the business media and economic prognosticators sing hymns about the coming recovery. The verses go something like this: we’ve hit the bottom; the economy’s opening up; “V” shaped rebound; unemployment shrinks by summertime. The stock market reflects the good news. The Dow Jones Industrial Average has risen 27% from its lowest point on March 20 and looks poised to recover its all-time high by August. Investors seem confident the good times lay right around the corner.

Maybe the optimists will nail this one. I certainly hope so. But the economist in me can’t ignore the dark clouds gathering on the horizon. We simply don’t know what having 41 million Americans unemployed means. No one alive has lived an unemployment rate of over 20%. The knock-on effects of those numbers have shown themselves already.  April retail sales fell 14.1% following an 8% decline in March as people worried about their finances. Consumer spending reflected this, crashing 13% in April. And the service sector declined two months in a row, though a smaller contraction in April than March. On June 3, Bloomberg Economics forecast 6 million white collar jobs would disappear in the next few months.

It’s the service sector we have to keep our eyes on.  Over 70% of the U.S. economy falls into services, our fastest growing segment before the virus.  Whole industries have collapsed in the last few months. Recovery seems a remote prospect. Airlines, hotels and car rental companies have shed jobs like mad, with no certainty that activity will ever hit pre-Covid numbers. Who, after all, really wants to jump a packed plane of passengers in masks? Other segments are similarly hamstrung. Will people head back to salons or will gray hair become the new fashion? Will people run back to restaurants? Can eateries survive with 25% occupancy?

New trends present the most peril.  The recent corporate yen for working at home threatens to decimate businesses built to service corporate offices. With Twitter employees working at home forever what happens to those gyms, restaurants and dry cleaners that have popped up around their San Francisco corporate headquarters? They likely shut for good. Similarly video conferencing could easily replace much of corporate travel, resulting in a death blow to hotel chains and airlines with networks we no longer need.

So I’m calling for a New Patriotism. It’s time for those companies and individuals that have money to step up and spend. Take out from your local favorite restaurant and when it reopens go even if you have to wait for a table. Keep those office services, like the twice weekly fruit deliveries, rather than slash them. Twitter, Apple, Facebook and countless other companies have to get at least some of their employees back to work, so that businesses built to serve them don’t collapse this summer, including those that provide for their corporate cafeterias. Corporate travel must begin to bounce back enough to keep planes in the air, accepting it’s better to see a customer’s body language than guess at it on your monitor.

I’m no fan of conspicuous consumption but that’s not what I’m calling for. I’m saying that if you want companies to continue to buy your products — Salesforce that means you — you have to support the underpinnings of the economy built around you. I make produce packaging for foodservice. If I don’t take out from restaurants — we have bought 200 burritos for an employee lunch twice — then they won’t buy five pound bags of Markon romaine. That translates into lower sales and less profits for me, and hurts my customers who lose a significant market for their leafy greens. If high unemployment hurts retail packaged produce sales, my major market, I’ll be scrambling like others right now.

Over the last few days as protests have raged across the country, we have heard Americans must stand together to oppose racism. Certainly we must. But we also have to stand together to help our economy heal from the ravages of Covid-19. If we don’t, the sunny predictions being made today will look foolish by the Fall. And we’ll be scrambling to find glimmers of sunlight as the storm clouds unleash their fury all across our land.

Thanks to Chris Mittlestat for inspiring this blog. Check out his company at www.fruitguys.com