“It’s going to be a hell of a ride,” said Chris Riegel, chief executive of Dayton-based digital sign and global customer technology company Stratacache.
Two of the Dayton region’s biggest events — the First Four and the Winterguard championships — were cancelled last week. Both events brought nearly $25 million to the Dayton region in past years. That coincided with financial markets bleeding wealth last week in the billions of dollars.
And the coronavirus is posing a greater threat to the U.S. economy as the outbreak shifts from a short-term headache for travel and manufacturing companies into a broader crisis that’s prompting many Americans to hunker down and limit their day-to-day activities.
That’s extending the pandemic’s reach into nearly every corner of commerce as many consumers avoid large gatherings of people in places such as movie theaters, malls, restaurants and sporting events.
“Sometimes as a macro-economist, we have a really a clear view of what’s happening with the economy,” said Bill Adams, a PNC Bank economist. “This is not one of those times.”
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PNC is still issuing economic forecasts, Adams said, but with the all-important caveat that uncertainty right now is very high.
“The risk of a recession is the highest it has been since 2009,” Adams said. “But a recession is not assured.”
If the COVID-19 outbreak is contained relatively quickly, if there is a strong fiscal response by the federal government and if stimulus measures are underway that support the economy, it’s possible the nation will avoid a recession, he said.
“But that’s a lot of ‘ifs,’”Adams added.
Cancelled Hoopla
The First Four games and surrounding events would have brought an estimated economic impact of $4.6 million in direct spending in local businesses, hotels, and restaurants, said Jacquelyn Powell, president and CEO of the Dayton Convention & Visitors Bureau.
WGI championships brought 60,000 visitors and almost $20 million in revenue over the two weekends.
But local officials are wary of saying this will be how much the region will lose. A JobsOhio spokesman referred questions about the possible economic impact to Gov. Mike DeWine’s office.
Nationally, the news is grimmer. Travel and trade shows are being cancelled. Oil prices are dropping and investors are fleeing into bonds.
At the moment, travel, leisure and transportation are the sectors of the economy most likely to be impacted, said David Kudla, a Dayton native and founder and chief executive of Grand Blanc, Mich.’s Mainstay Capital Management.
At the Port of Los Angeles last week, 145 drivers were laid off and others were sent home without pay as ships from China stopped arriving, the Stars and Stripes newspaper reported. Travel agencies in Atlanta and Los Angeles shed workers as bookings ceased, the newspaper reported.
An ongoing frustration as the situation unravels: Many of the efforts to keep people healthy are often the very measures that can dampen an economy, Kudla said.
“As coronavirus spreads across the country and around the globe, actions to prevent its impact will have deep ramifications for the global and our domestic economy,” he said. “The actions to prevent the spread of coronavirus are essentially shutting down economies.”
Added Kudla: “The threat of a U.S. and global recession is growing.”
“There’s nothing certain, but I think the bear market signals a strong chance of recession,” said Daniel Kapusta, director of the University of Dayton Davis Center for Portfolio Management as well as a lecturer in finance.
A bear market happens when stock and security prices fall 20 percent or more from recent highs. The Dow Jones Industrial Average formally entered bear territory last week.
If one considers the Dow or the S&P 500, those markets have fallen into bear market territory 13 times in the past 95 years, Kapusta said.
“In only two of those did we not see a recession, ” he said. “That was 1987 and 1966, so the odds are not good for us to avoid a recession.”
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Stratacache’s Riegel guesses that we’re in the early stages of an economic situation that will be felt well into the second and third quarter of the year, if not beyond.
“This is not a week or two and then it goes away,” Riegel said. “From an economic perspective, when you see sports leagues cancelling, where you see events through June and July that are cancelling, I think it’s going to be here for some period of time.”
In manufacturing, supply chains are interdependent. A disruption in one place has a ripple effect that quickly spreads.
Auto manufacturers, for example, have a supply of parts that may last for several weeks. Once parts are used up, plants may begin to shut down and entire quarters can be impacted, Riegel said.
Meanwhile, Riegel feels governments need to more rather than less transparent. “Reducing the hype cycle, reducing the panic, is probably the best way,” he said. “Basic crisis management 101 is to over-communicate.”
“This is unprecedented,” UD’s Kapusta said. “Pandemics don’t happen very often. I mean, it hasn’t happened in my lifetime.”
‘Working through the disruption’
The situation is evolving rapidly, often changing hourly. Business goes on, but often with employees working remotely, from home or outside the office.
“One thing I’ve noticed is that many of the businesses I’m in contact with via newsletters, event lists, etc., seem to be moving quickly to make sure they can keep operating and making sure the electronic infrastructure is there for their employees to work remotely and for them to conduct meetings via phone or video conference,” said Shannon Joyce Neal, vice president of strategic communications for the Dayton Development Coalition. “Their goal is not shutting down, but working through the disruption.”
At Stratacache, all key employees have remote access, Riegel said. Many businesses are taking this approach, with fallback plans to work from home when needed.
But that’s easier for a technology or information services company than, say, a restaurant, pub or sports venue, he noted.
Adams, the PNC economist, believes we’re in the beginning stages of a shock to the U.S. economy, in which we can already see the outlines of the impact.
“We don’t know how long this shock is going to last,” Adams said.
Last week, the Federal Reserve said it will inject more than $1.5 trillion of temporary liquidity into Wall Street on Thursday and Friday to keep financial markets afloat.
“These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the Fed said.
Kudla said monetary stimulus from central banks like the Fed can help. But he believes the federal government should pursue immediate fiscal stimulus to avoid a recession.
