ECONOMY

The Long Recovery Ahead

When an athlete gets hurt, all they think about is the timeline for getting back on the field. The same goes for an injured economy: How long will it take to recover? 

Probably years 

Economists were hoping for a V-shaped economic recovery: a rapid slide down followed by a quick climb back. But many are scaling expectations back to a Nike swoosh-shaped recovery in which output may not return to pre-pandemic levels until late 2021 (or later). 

Even worse would be a W-shaped recovery, where the economy weathers one recession only to faceplant into a second. 

• “If a second downturn were to flare up, it’s far from clear that Congress would be ready to offer trillions more to enable businesses to survive yet another round of months-long shutdowns,” the AP reports.  

Recoveries don’t happen evenly 

A recession’s full effects can take years to ripple out. The Great Recession technically ended in June 2009, yet bank failures peaked in 2010. And as late as 2013, state and local governments were still slashing jobs.

81% of small businesses think COVID-19 could impact them for 12–16 months. By some estimates, half of small businesses could fold within six, and laid off workers could require years to find new roles. 

One worrying trend: More businesses are moving to permanent layoffs as they close factories and reduce operations. 

• Manufacturing, which never returned to pre-2008 levels, is especially vulnerable: Between 2010 and 2019, the sector added 1.4 million jobs. In April, it lost 1.3 million (including temporary layoffs).
• The Becker Friedman Institute predicts that 42% of layoffs will be permanent. 

Business closures also have upstream effects. Commercial real estate owners are expected to swallow big losses, then pass those up to banks when they can’t make debt payments...which could push banks into failure. 

Of course, you wouldn't know any of this by looking at the stock market. 

TRENDS

Fresh Trends of Q1

Now this is a story all about how our lives got flipped-turned upside down
And we’d like to take a minute, just sit right there
While we try to make sense of trends going on out there

What’s up

Late-night snacks: General Mills reported a 45% jump in retail sales in March followed by a 32% increase in April as comfort foods came back in flavor.

Traffic: Mobility data from Apple Maps shows that driving route requests recently peaked at just 6% below baseline levels, up from -60% in early April. And gas consumption jumped by 400,000 barrels a day in the week leading up to May 1. 

Safety gear: Industrial distributor Fastenal saw sales for PPE and safety gear spike 120% in April. “This is entirely a function of what I would call surge orders,” explained the company’s CFO. Shares hit a record high yesterday.

What’s down

Continental breakfasts: Even as business in China begins to pick up again, Marriott still reported a 22.5% drop in revenue per available room last quarter. 

Moisture-wicking: Any way you spin it, sportswear giant Under Armour is in trouble. Sales fell 23% in Q1, which is just a warmup for the 60% crash management expects in Q2.

AUTO

Musk Ditches the Home Office

In a late-afternoon press release tweet yesterday, Elon Musk announced that Tesla's Fremont, CA, factory would be restarting production, defying Bay Area coronavirus-related health restrictions. 

• The Tesla CEO declared he would be on the line next to his workers. “If anyone is arrested, I ask that it only be me” Musk wrote. 

Elon’s angry. He feels like Tesla has been unfairly put in timeout, while all of its friends—Ford, GM, and Fiat-Chrysler—get to reopen their factories come Monday. 

And he’s not alone

• Texas Senator Ted Cruz traveled to get his hair cut by a salon owner he felt was wrongly imprisoned for ignoring lockdown orders in early May. 
• Businesses in Pennsylvania, with the support of local governments, are openly defying state-mandated lockdowns. 

But...state governors are neither powerless nor pleased. Pennsylvania Gov. Tom Wolf lambasted county officials, saying, “they need to understand the consequences of their cowardly act” while also threatening to pull disaster relief funding and business licenses if they don't comply.

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Every organization—from nonprofits and credit unions to healthcare groups and universities—can benefit from BoardEffect’s platform.

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ENERGY

It’s Always Sunny in Las Vegas

Whether it was the aggressive sunburns or the constant squinting, U.S. officials finally caught on to the fact that Nevada is sunny. Yesterday, a subsidiary of Berkshire Hathaway won approval from the Trump administration to begin construction on what will be the biggest solar farm in the U.S. and eighth largest in the world.

The $1 billion Gemini project will power 260,000 homes, enough to cover Las Vegas's entire residential population.  

• The why: Nevada plans to generate half of its energy from renewable sources by 2030.   
• The other why: When it comes to economic recovery from the pandemic, Interior Secretary David Bernhardt hopes what happens in Vegas doesn’t stay there. The massive construction project is “really part of our effort to foster jobs,” he explained. 

Reality check: The Gemini project is a ray of sunlight in what has otherwise been a dark time for the industry—13 sizable solar projects have been scrapped in Texas alone since March due to the state's collapsing economy. 

CRYPTO

Well That Just Halvened

Like Olympic skeleton, bitcoin halving is a once-in-every-four-years event that makes you say, "I'll never understand how they do that, but...it's cool, I guess." 

The halving, which took place yesterday afternoon, reduces the reward bitcoin miners can collect by 50%. 

• Bitcoin is the world's largest cryptocurrency by market cap. Yesterday, 1 bitcoin was worth around $8,600. 

How it works: Miners play a crucial role in the process of generating new bitcoins, for which they receive a healthy amount of bitcoin as a reward. But here’s the thing: The supply of total bitcoins able to be generated is capped at 21 million. Halving events are meant to apply the brakes slowly—if all goes according to plan, the final halving should take place in 2140.

Why it matters: The halving will wipe out many smaller miners whose operations are now unprofitable, given the new reward structure.

If you want more on the halving, read a detailed explanation from Emerging Tech Brew.

WHAT ELSE IS BREWING

• Chinese foreign direct investment in the U.S. dropped to its lowest level since the financial crisis. 
• Endeavor Group, the owner of the UFC and talent agency WME, secured a $260 million loan to help it survive the crisis, per the WSJ.
• BlackRock's largest shareholder, PNC, is selling its 22% stake worth around $17 billion. 
• New York will open some “low-risk” businesses this week, including gardening stores and drive-in movie theaters.
• The WHO said several countries that reopened businesses have experienced an uptick in COVID-19 cases.
• Caesars Entertainment reported “significant revenue declines” in Q1 as the coronavirus forced casino closures across the world.

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AP EXAM

3.4 million high school students are set to take AP exams over the next few weeks, and get this—the modified tests will be 45 minutes max. Here’s a sample question from an AP Macroeconomics test to get your brain fired up for the day.

Hyperinflation is typically caused by:

1. High tax rates that discourage work effort
2. Continuous expansion of the money supply to finance government budget deficits
3. Bad harvests that lead to widespread shortages
4. A large decline in corporate profits that leads to a decrease in production

AP EXAM ANSWERS

B. We take full credit if you got it right.