Via Wolf Street

The Pandemic knocked them into utter turmoil. But they’re not sitting still.

By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT.

We’ve got the weirdest economy ever. A disputed number of people lost their jobs early on in the Pandemic, with figures ranging from 22 million to 33 million people who lost their jobs, depending on whether we looked at the monthly jobs report or the number of people having filed for unemployment.

Since then, millions of people have been hired back by restaurants, gyms, hotels, and other enterprises that had shut down. This was followed – and that’s the phase we’re in now – by more layoffs but further up the corporate chain, with higher-paying jobs now getting axed. Initial unemployment claims of newly laid-off workers have remained horribly high, at over 800,000 a week, and have risen recently.

But wait… at the same time that this jobs fiasco is playing out, retail sales – so that’s goods bought online and in stores – after plunging in March and April have spiked to record highs.

This does not include services such as insurance, airline tickets, hotel bookings, rent, healthcare, etc.  And we know that airline passenger revenue at Delta, for example, has collapsed by 83% from a year ago in the third quarter, according to Delta’s quarterly earnings report. Many hotels remain closed.

In August, spending by Americans on services was still 7.4% below a year ago. And spending on services is the largest part of consumer spending.

But they plowed record amounts of money into buying goods, such as electronics, appliances, cars, bicycles, exercise equipment, and the like. According to government data, the amount that Americans spent on durable goods in August spiked by 12% from February, just before the Pandemic.

Consumers and businesses have changed – and those changes range from the banal, that we might be tempted to just brush off if it weren’t so radical, to the profound, creating shortages or supply gluts, and price spikes, and other distortions, with some business hugely benefitting, and with others getting wiped out, and with lots of new businesses being created to take advantage of, and cater to, those changes. And those changes are now everywhere.

Sales of laptops and PCs have been declining periodically in the US for a decade, as consumer switched to smartphones as the primary electronic device, and consumer laptops had been written off as a dying business. They just couldn’t compete with the smartphone for the kinds of things most consumers want to do. Businesses still bought lots of laptops and PCs, but consumers pulled back.

Then came working-at-home and learning-at-home, and suddenly everyone needed a laptop, and multiple laptops in some families. Schools and households scrambled to line up low-end laptops for remote learning, and suddenly there were reports of shortages of Chromebooks and other lower-end machines.

In the third quarter, 16.5 million laptops and PCs were shipped to the US. That’s up over 11% from a year ago, the fastest growth rate in over a decade, according to Gartner which tracks computer and smartphone shipments – and that wasn’t enough to satisfy soaring demand. Hence the shortages.

Within weeks into the lockdowns, there were reports of booming business at bike shops, and soon there were reports that bicycles had sold out, and that manufacturers all concentrated on making more bicycles, and stopped selling components as individual components because they all went into the bikes, and suddenly there were reports of bicycle-component shortages.

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There have been reports that hot tubs and jacuzzies are sold out into next year, as people built out their back yards and decks, and you gotta have a jacuzzi there.

People, with so much time on their hands, suddenly bought seeds and gardening equipment, and planted herb gardens and vegetable gardens and fruit trees. While many of them will soon give up on those projects, others are having a blast doing it – and that has long-term consequences, including how consumers are spending their time.

Now there is a shortage of coffee filters as people make coffee at home instead of drinking it at work, or stopping by a Starbucks or Peet’s to drink it on the way to work. Costco, when I asked them about it because I’d not been able to find coffee filters there, they told me that they’ve been out of filters for months. Our Trader Joes has been out in recent weeks every time we went by there. Safeway has run out too, with only sporadic supply. A week ago, I was lucky and grabbed the last box off the shelf.

Not that I need filters to make coffee. I have a selection of Italian stovetop espresso makers, I have a French press, I have a cloth filter, depending on what mood I’m in, but it’s curious that coffee filters show up on the shortage list. And people who discover that they can make coffee at home that is a lot cheaper and maybe also better than what they get on the way to work or at work may well stick with it. The act of making coffee can be a cheap pleasure – the smells and sounds of it, and that might have permanent consequences.

Over the summer – with flying still an issue and vacations nixed by travel bans – sales of RVs and camping equipment soared, and there were reports of camping equipment being in short supply, as people flocked to National Parks and State Parks to enjoy the outdoors and get away from crowded places, only to run into booked-out camping sites and crowded places. Lots of people discovered or rediscovered the beauty of camping, and that will have long-term consequences.

Oh, and puppies. This business suddenly skyrocketed, apparently, with people spending so much time at home, and with kids going nuts, and with people who live by themselves getting lonesome. And the “companion animal industry,” as it’s known, suddenly boomed. That’s not just the puppies, it’s the dog food and supplies and toys, and the vet, and all the other things that go with owning a dog. And that has long-term consequences.

And then there is the issue of haircuts. When barbershops closed, a lot of men bought electric hair clippers and learned how to cut their own hair. Suddenly, there were YouTube videos showing guys what to do and not to do with their clippers, and some of these videos got many millions of views, and whole business models sprang up, teaching guys how to cut their own hair. If a video gets 5 million views, the ad revenues are starting to pile up.

But the first consequence was, you guessed it, a shortage of hair clippers. Manufacturers and vendors had a booming business in hair clippers.

As in so many of these issues, there are long-term consequences. Now seven months into cutting our own hair, many of us have gotten pretty good at it. It’s fairly quick, if you’re not too picky, you don’t need to go anywhere to get it done and save all this time, you can do it on the first Saturday each month as a ritual and always look neat and trimmed.

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It’s really very practical – and it saves a little money along the way. Personally, I enjoy cutting my own hair, and I’m experimenting with it, and now I have the cut that I truly deserve.

And if I screw it up, my wife knows what her role is in this endeavor. She has to say, great haircut! Or, cute haircut! Or similar. We got that down pat. And always get a good laugh out of it.

Many couples have come to a new understanding of how to harmoniously conduct their relationship, with so many things now different, including working from home and learning at home, and maybe sitting on top of each other all day.

When gyms closed, it gave rise to exercising at home and outdoors. And there was a surge in equipment sales, all kinds of exercise machines, including bike trainers, and weights and all kinds of rubber straps and the like. And of course, the bicycles I mentioned a minute ago.

What I really enjoy seeing is the huge number of people now exercising outdoors, in the beauty of the San Francisco waterfront, at Aquatics Park, the Marina Green, Crissy Fields. And lots of people, with pools closed, bought wetsuits and started swimming in the beautiful but cold and polluted Bay. There are water polo teams training in the Bay now.

The beauty of this place is just stunning, and locals – not just tourists – are now discovering it. The vibes are incredible, social distancing and masks and all. I’m not sure how much of it will stick, but some of it will.

This Pandemic has knocked us off track, and we had to do things differently, and suddenly we discovered new things that were always right in front of us but we didn’t see them.

Using a different metaphor, the Pandemic has forced consumers and businesses out of a rut. Everything is now being looked at with fresh points of views.

One of the consequences of this fresh thinking is that companies have discovered what is efficient, in terms of working from home, and what isn’t, and they’re now building permanent hybrid models where, after the Pandemic, part of the work will be done from home, and some of the things will be done in the office, or in a meeting place.

And the office sector of commercial real estate has to think very creatively. And there will be lots of turmoil.

All these changes have big consequences. A considerable part of business travel has now been revealed as unnecessary, as an inefficient use of time, as a waste of human and financial resources. And the travel industry will struggle for years coping with that change.

And there are suddenly a record number of new businesses springing up as entrepreneurs see opportunity in the shifting behavior and consumption patterns, and in the different ways that businesses are operating.

In the first quarter this year, so mostly before the Pandemic, business applications fell for the second year in a row. This data was released by the Census Bureau. It’s based on actual business applications and not on sampling.

In the second quarter, so that’s April through June, while the lockdowns were happening, business applications, instead of plunging, surprisingly rose a smidgen compared to a year ago.

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And in the third quarter, as some of these new trends became clearer, business applications skyrocketed 82% from a year ago, to a record of nearly 1.5 million, by far the highest for any quarter in the Census Bureau data going back to 2004.

Obviously, these business applications also include a lot of desperate people who’d lost their jobs and decided to make a go of it on their own. It includes older people, meaning people over 50, with lots of experience who’ve been tarred and feathered and driven out of town by blatant ageism, and they’re striking out on their own. Maybe they’re staying within their field, or maybe they’re striking out into a completely new direction, maybe a passion of theirs that they finally decided to turn into a business.

But so-called high-propensity business applications also hit a new record. These are business applications that have a higher likelihood of turning into businesses with actual employees and payroll. So these are businesses that have plans to grow into larger businesses with employees, not just a guy-on-his-own operation.

These high-propensity business applications soared by 66% in the third quarter compared to a year ago, to over 500,000 applications – by far the highest ever in the data going back to 2004.

This surge in new business formations is another indicator that the Pandemic knocked us out of our rut, for better or worse, and that people are doing things differently, and that they want to do things differently, and that the last train to Old Normal has long ago left the station.

And everyone is trying to figure out where to go from here, how to move forward, and how to do things differently and maybe better, and more efficiently, maybe even create a new business.

The destruction of the pandemic has been widespread and massive, and it continues. What are the barbers and salons going to do that used to cut our hair? Are people who bought a bicycle and who’re now riding outside ever going back to pedaling away on an exercise bike in the gym and watch TV? Surely some people will. But others will not.

For many people, the old normal was just fine. And some may be just trying to make it through this period. And they’re struggling to get back to the old normal, even if they can’t because too many things – big and small – have changed. However this is going to turn out, and there are lots of uncertainties, we do know that it has thrown many people and businesses into utter turmoil.

But as people and businesses are trying to figure out how to navigate this turmoil, and find their place in it, they’re already working on their own version of a “reset,” where so many things will be different, and with lasting consequences. For the optimists among us, that could be a good thing. You can listen and subscribe to THE WOLF STREET REPORT on YouTube or download it wherever you get your podcasts.

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