This morning we woke to an unsettling yet unsurprising April jobs report detailing 20.5 million jobless claims.
Few sectors of the economy were unscathed. Here in the Bay Area, for example, you could almost hear the sound of the tech sector shrinking. Once high-flying companies like Lyft, Uber, Airbnb, Zenefits, are deleting upwards of 20% of their workforces.
The Small Business Apocalypse
The shrinking small business sector may make less noise but its pain is just as real. Nail and beauty salons. Sandwich shops. Dental clinics. And of course restaurants. All decimated by lockdowns.
The authors of this McKinsey piece argue that small businesses account for a disproportional share of vulnerable jobs. According to their research, while businesses with 99 or fewer employees account for 35% of private-sector jobs, nearly 50% of those jobs are vulnerable. That compares to 40% of the employees at firms with 500 or more employees being vulnerable. That alone speaks to the pending challenges in the employment marketplace.
If you do the simple math, McKinsey suggests that 54% of vulnerable employees at companies with fewer than 500 employees and 75% of those are at companies with fewer than 99 employees.
High-Touch Service in a Zero-Touch World
So here is the economic challenge. Employees at companies with fewer than 99 employees are more likely to have less money in a rainy day account since their employee is much less likely to be contributing to some form of a retirement account. Plus, many of those employees are in categories that have been particularly hard hit and are less likely to rebound quickly.
If you’re in light manufacturing, for example, a company that makes supplies for the wine industry (big here in Northern California) your job may rebound relatively quickly. Grapes will need to be harvested and crushed and put in barrels and then bottled. Supply chains like these, while temporarily disrupted, should be back to normal in two to three months.
On the other hand, the nail shop will be slow to rebound. Social distancing will limit the number of customers allowed in the shop. Shop owners will have to establish new operating rules focused heavily on protecting customers and the nail technicians from contact (not sure even what that looks like).
Dental practices will have to overcome the considerable anxiety of their patients who will worry about similar contact.
My friend Dan the Dentist has authored a lengthy email to his patients (and he’s about to drop another one) outlining very specifically the steps he’s taking to arrest those anxieties. But I doubt he will be back to his full volume of dental hygiene visits anytime soon. This means he’ll be unable to bring back his entire staff for some time to come.
The Economics of Limited Reopening
Much has been written about the restaurant industry and how operating at 25% capacity is likely a non-starter for many restaurants.
I was watching a piece on this earlier this week interviewing a restaurant owner, who said, “I usually have five wait staff and five kitchen staff. So how can my economics work if I can only serve up to 25% capacity.”
And I thought to myself, why not have two wait staff and two kitchen staff, and simplify the menu? It seems like a practical way for many restaurants to effect a partial return. It’s better to rehire four workers than zero.
Some Sectors May Bounce Back Quickly
There are a few local categories that I see returning with a hockey stick like curve once the crisis subsides. These include home serves, automotive, and pet services.
When you are under quarantine, you begin to see all the home repairs and updates that are crying for attention. The washing machine works, but it’s making a strange noise. The dishwasher, so overworked from weeks of breakfast, lunch, and dinner dishes, smells funny and needs attention. And there’s that space in the house where with just a few dollars invested you could Zoom away without the baby, dog, or roommate interfering.
Based on what I am reading, here in the Bay Area, once we begin returning to offices, the personal car will be the preferred means of transport. Most Bay Area public transportation experts expect passenger levels to remain well below pre-corona levels. That’s good news for the auto services sector. More oil changes, bodywork, and car sales.
Then there’s the pet services space. While we may not have adopted a pet during the quarantine, many others did. The downstream impact of this will be many more visits to the dog groomer and more demand for dog walkers once we return to work. Not to mention more visits to the local veterinarian.
Stock Market Sleight of Hand?
One thing that has many of us scratching our heads is why the stock market is rising in the face of today’s brutal jobs report.
As Mark Cuban said on television yesterday, there’s really nowhere else for people who have some cash to invest their money. Commercial real estate is iffy. How will all of those 61 floors of the Salesforce tower get filled as WFH becomes the new normal? Residential real estate is also iffy. It’s hard to afford a mortgage when you’re underemployed or unemployed. That pretty much leaves savings accounts which offer nearly zero interest. Or the stock market. Crazy, right?