Small Businesses Are In Big Trouble
Apparently, the stock market is fine with a stimulus being delayed until 2021. And it doesn’t matter to the market as long as the uncertainty over whether it will pass is gone. It’s a coin flip where the market wins no matter which way the election lands. Goldman is even predicting higher oil prices on the back of a Democrat win which is ironic because progressives are in favor of green power more than the GOP.
While stocks don’t care if help comes in a week or next year, small firms and poor people need the help as soon as possible. Big businesses on the stock market actually are benefitting from the lack of competition from small companies. However, small companies employ a lot of people. It would be a disaster for the long term economy if small businesses died out.
Apple only employs 137,000 people which isn’t that much for a $2.16 trillion company. ExxonMobil employs 74,900 workers and its market cap is only $146 billion. That’s just one example. Point is a lot of the big tech companies don’t employ many people. They have shifted to an asset-lite employee-lite model which is terrible for the working class. Many people get paid low wages via contract work. For example, the janitors at Apple don’t work for Apple.
That brings us to the chart above which shows the percentage of small firms in the hardest hit industries that can’t afford to pay their rent. A whopping 46% of small beauty salons and 40% of both small restaurants and gyms couldn’t pay their October rent. Their time is almost up. It’s fairly clear the COVID-19 crisis is much closer to its end than it was 7 months ago, but that doesn’t help these firms pay rent.
Reality is that restaurants are about to face even more struggles as the weather gets colder. Next 1-2 months are going to be brutal for small businesses no matter what. That’s why a stimulus soon is paramount for the non-publicly traded part of the economy.
Lapping No Stimulus
Since April, the fiscal stimulus was impressively large and on time. We are used to seeing stimulus plans occur after recessions. What would typically happen is nothing would get done in 2020 and then the winning party would pass something in the middle of next year after the cyclical trough occurred.
A stimulus would get credit for the recovery, but it wouldn’t have done much. It’s like pushing a child down a slide when the child is already halfway down. This time was different because the recession was so bad. If no help came, there would have been massive long term damage.
The chart above shows the potential tough comps economies will lap next year without stimulus. It would be very difficult for America especially. However, this ignores the fact that another stimulus is coming. Furthermore, COVID-19 won’t be as much of an issue. We will be lapping lockdowns next year. The economy is about to be in a much healthier state in the spring of 2021 compared to this spring.
A4% fiscal drag assuming current policies expire is still notable. It shows what could happen without a final bit of help from the government to allow people to survive this tough situation.
Flying Is Coming Back Again?
The stock market genuinely was worried about the decline in flying after the Labor Day holiday weekend burst. It was shocking. Even though COVID-19 is ravaging flying, seasonality still exists. As you can see from the chart below, that line of thinking was correct. Focus on the orange line and ignore the others.
7 day moving average of TSA checkpoint measuring total traveler throughput as a percentage of last year has increased since the drop off after Labor Day. It has increased almost to the holiday peak. Remember, Labor Day was later than last year, so the yearly growth rate was impacted. Obviously, being 34.4% of last year is still a huge decline. Furthermore, at the recent rate of improvement, it would take weeks even to get to half of last year.
Rate of improvement slowed from where it was in May and June. It's unlikely that holiday travel will be anywhere close to normal even if there are rapid tests at all airports. If you’re curious, Mexican airports are doing much better than American airports. For example, OMA, which has airports in the middle of the country, had a 50.7% decline in passengers in September.
People Don’t Want A Vaccine
People are growing more skeptical about a potential vaccine. They are becoming more skeptical because they hear in the news when there are problems with phase 3 trials. Plus, the death rate from COVID-19 has shrunk substantially so it’s becoming less of a pressing issue. That's not discounting the virus, but it’s human nature to be less fearful when fewer people are dying.
As you can see from the chart above, the Pew Research Center shows less than 40% would get the COVID-19 vaccine and about 30% are unsure. Another 30% said no. According to Gallup, in late July 66% of people said they would get the vaccine and in late September only 50% said they would. Gallup has a higher nominal percentage, but a greater decrease compared to a couple months prior.
Good news is not everyone needs to get the vaccine to control the virus. It will be curious if companies will force workers to get the vaccine if the public is so against it. Imagine if a company asked its workers to get it and 60% refused. That would be bad. Some might change their mind to keep their job.
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