American economy on the bubble

first_img Harvard’s Lipsitch urges public to ramp up social distancing, increase coronavirus tests “There is so much research on the negative consequences for companies of layoffs that I continue to be surprised that it is as popular a practice as it is,” said Sucher, of a three-year hangover effect that includes reduced profitability; lost productivity; weakened morale; quality, safety and innovation declines; customer erosion; and difficulty attracting new hires following mass layoffs.Overall when judging businesses, “People are going to look at the balance that’s being struck between what companies say they’re interested in and what they do,” she said.With different states on different timelines, Summers predicted an economic reawakening that occurs in fits and starts. “Even if we do it safely … it’s not a steady march from darkness into light. It’s not a steady march uphill. It’s three steps up, one or two steps down, three steps up … And there are going to be moments when we step too far, and we have to then lock things down,” he said. “I think this is going to be a pretty gradual process.” Why odds of a coronavirus recession have risen A five-layered defense for workplace reopening ‘Worry about 4 weeks from now,’ epidemiologist warns Jeffrey Frankel cites domino effect of problems in China, huge U.S. deficit, likely decline in jobs and spending center_img Chan School’s Allen looks at COVID-19 through healthy-building eyes This is part of our Coronavirus Update series in which Harvard specialists in epidemiology, infectious disease, economics, politics, and other disciplines offer insights into what the latest developments in the COVID-19 outbreak may bring.As several states begin piecemeal easing of stay-at-home restrictions, President Trump continues his push for a speedier nationwide opening to revive the battered U.S. economy and head off a possible recession, despite concerns of public health experts and economists and polls indicating that most Americans think it’s too soon.“There will come a point when it’s right to open up the economy,” said Harvard President Emeritus Lawrence Summers, Ph.D. ’82, the Charles W. Eliot University Professor and a former U.S. Treasury Secretary, during a virtual talk on April 20 for Harvard Business School (HBS) students and alumni. “But no one who sensibly looks at data could possibly believe that that point is this week or next week.”All agree, however, that the nation’s economy is in significant, and perhaps lasting, peril that will grow more acute the longer businesses remain dormant, as a careening stock market and surging unemployment claims suggest. While major online retailers Amazon and Walmart and streaming services like Netflix have seen gains from the shift in American lifestyle, most businesses have not. Data suggests those segments facing the most immediate threat include restaurants, retail stores, hotels, movie theaters, and small businesses, some of which cannot survive a month or more without revenue. But they’re hardly alone, and even an eventual, safe reopening will bring challenges.“I think what’s less appreciated is that if we go through a big recession, everybody’s going to be affected,” because investment will be cut and consumer wallets will be lighter. “That hits every line of possible business,” said Robin Greenwood, Ph.D. ’03, George Gund Professor of Finance and Banking, and head of the finance unit at HBS.The time to open up the economy has yet to arrive, says Professor Lawrence Summers. Rose Lincoln/Harvard file photoBusinesses that convene large groups, such as conferences and trade shows, concerts and theatrical performances, professional sports, museums, and theme parks, are the industries Jill Avery, who studies customer relationship management at HBS, said she is most worried about. To survive once the economy resumes, these types of businesses will need to reconsider how customers occupy and flow through their venues in order to maintain safe physical distancing. Even so, she suspects conference planners will likely have to keep events virtual until a vaccine is widely available. But that may not be enough.“Even after a vaccine, will we be left feeling uneasy when six feet of distance is unable to be obtained between people? Probably. The experiences of previous generations who lived through other crises, such as the Great Depression, show us that consumer behaviors, once changed under times of extreme stress, are often resistant to reverting back to previous behaviors, even when the threat is lifted,” she said in an email.How quickly and robustly the U.S. economy rebounds will be shaped in large part by emotion.If most Americans are too afraid, physically or financially, to start shopping, traveling, eating in restaurants, or going out, it could be catastrophic. Consumer spending accounts for more than two-thirds of the nation’s economic activity.“The economy is powered by spending and if people are not spending, that’s a death spiral,” said Greenwood, who recently launched a website on COVID-19-related business data and research with Alberto F. Cavallo, Edgerley Family Associate Professor of Business Administration at HBS.“If the lockdown is short, the psychology of it isn’t that bad. In fact, the first thing people want to do is get back outside and get back to the things they were doing before,” he said. “If the lockdown is very long and full of hardship, then we’re in for a very, very tough ride.”Calming jitters and successfully restarting the U.S. economy will depend on three factors, said Greenwood: how comfortable the public is with being monitored for COVID-19, how effective treatments and efforts to prevent the disease through a vaccine are, and how prevalent the virus is in the population where people are asymptomatic. “If it’s 90 or 95 percent, for example, we may decide we can live with this … we don’t know.”Even when restrictions are lifted, there still will be challenges. Firms that can and do reopen will face great uncertainty about some fundamental questions: How easy will it be to get materials and supplies? How quickly will sales return? How many employees should they rehire? Moving ahead without that information is financially perilous. Many businesses will proceed anyway, but with great caution.Professor Francesca Gino says she is “encouraged” by the number of businesses that have found ways to retain staff. File photo by Katherine Taylor“Imagine that type of decision proceeding en masse, across the economy, and a little bit of conservatism can have some pretty negative effects,” said Greenwood.Francesca Gino, Tandon Family Professor of Business Administration at HBS, said she has been “encouraged” so far by the number of businesses that have found ways to retain staff, perhaps in new roles, and that have expanded pay, health, and other benefits to them rather than defaulting to layoffs.Though she concedes these moves “may not be possible for every business,” Gino said that as companies are “thinking about how to manage the short-term challenges this crisis is creating, leaders should try to keep perspective also on the long-term: How can they reimagine themselves and rethink how they do their work?”The COVID-19 shutdown has already prompted major changes to workplaces, marketing pitches, and consumer behavior. The abrupt shift to digital tools like Zoom conferencing that enabled remote work and distance learning may linger “if employers continue to see productivity gains from remote workers,” said Avery. A long-term switch could affect a range of businesses, from video-conferencing-related sales and services to commercial office space leasing, office design, and even home office furnishings.Also, the widespread retreat to the relative safety of home has spurred a major shift in grocery shopping habits. During the crisis, online ordering and delivery have “increased dramatically” over precrisis numbers, when less than 5 percent of food purchases were done via e-commerce, said Avery. There’s also been a surge in comfort-seeking, especially in food choices. Besides baking and soup-making, anxious consumers have turned to pantry items such as canned soups, boxed stuffing and rice mixes, and breakfast cereals, all of which had fallen out of favor in recent years. Many consumers are also returning to brands from childhood that they may not have purchased in years, such as Chef Boyardee, SpaghettiOs, Spam, and Lucky Charms, “to soothe anxiety and to symbolically return them to a less stressful time,” she said.More broadly, the pandemic could have more significant, lasting effects on the attitudes and behaviors of younger generations, as the Depression Era shortages did on the thrifty Silent Generation. Millennials, known for valuing experiences over goods, may recalibrate that preference as demand for travel and sharing services like Lyft, Uber, and Airbnb decline precipitously, and time at home puts greater focus on products. Generation Z, a demographic highly coveted by marketers, may be less willing to try new products and unfamiliar brands if personal safety and health remain a primary concern. Brand trust is always important to consumers, and it could have significant implications for product innovation and competition if legacy brands that have built up decades of trust enjoy a major advantage.Regaining public trust will be key, says Harvard Business School Professor Sandra Sucher. Stephanie Mitchell/Harvard file photoNo matter the industry, the biggest challenge for firms as they reopen will be regaining trust, said Sandra Sucher, Joseph L. Rice III Faculty Fellow and a professor of management practice at HBS.With safety suddenly a high-value commodity, companies will need to clearly communicate and demonstrate that they have kept their customers, employees, and supply-chain partners safe during the shutdown, as well as what steps they’ve taken to operate safely. They also will be judged by the effect they have on their communities, both intended and unintended, and whether they take responsibility for any harm they may have caused, particularly when it comes to their workers. Firms that eagerly trumpet how they gave extra vacation pay to furloughed employees won’t earn public trust if they also paid out stock dividends to investors and top executives. And for companies that laid off large numbers of employees, there may be a price to pay. Related The Daily Gazette Sign up for daily emails to get the latest Harvard news.last_img read more

Wisconsin’s fall from No. 1 sparks concern

first_imgAfter a few marquee wins over opponents like Pittsburgh and Marquette, the Wisconsin men’s basketball team’s chance at a Final Four run — maybe even a successful one — looked about as good as Iverson and ‘Melo on the same team sounded. However, after Sunday’s game against Ohio State and a recent and revealing Big Ten away schedule, the Badgers’ chances at a successful Final Four run look about as good as Scottie Pippen’s chances of making a successful comeback.Like the ‘Melo and Iverson tandem, the season has turned sour of late. With three losses in the past month, UW has learned it has some rather pressing issues to address.I’m not referring to the issue of Marcus Landry’s inelegant goggles; I’m referring to the Badgers’ lack of legitimate, consistent scoring threats outside of Alando Tucker. I’m referring to the team’s inability to perform with the largest target you can have on your back in college basketball: a No. 1 ranking. And I’m referring to Brian Butch. May God bless and heal him quickly. In time for the Big Ten tournament, please.The Badgers have increasingly looked to their bench as the scoring of Tucker’s usual supporting cast of Taylor (boy, have I got some things to say about him) and Butch has waned over the season. With impressive performances from my boy Landry, who dunked on me once, Greg Stiemsma and freshman sensation Jason Bohannon, UW’s bench has been outplaying and outscoring its opponents’ benches, and on occasion, the Wisconsin starters. Unfortunately, the blessing that is the Badger bench is mitigated by the fact that, on any given night, it’s difficult to know if any bench player will be stepping up.Don’t get me wrong, it’s nice that Landry can take opponents completely by surprise and drop 18 in one game, or that J-Bo can surprise opponents with prolific shooting. However, the Badgers would benefit from a steady hand that consistently provides them with a second scoring threat. No one — Bohannon, Stiemsma or Landry — has been able to be that guy on a game-to-game basis.Moments of genius from Wisconsin’s top backups have kept the Badgers plenty excited, but teams like Indiana and Michigan State have exploited the lack of consistent scoring from players like Taylor, and our dependence upon Tucker. Double teams and triple teams are now about as familiar to Tucker as the particulars of Anna Nicole Smith’s death, burial, or lack thereof, and love life are to those of us who mistakenly made our homepage in the hope of being informed about pertinent news.Michigan State and Indiana wisely absorbed the blows from our bench and shut down the biggest threat in Tucker using double and triple teams. The Spartans and Hoosiers were aware they had little to fear from the streaky Taylor or the inconsistent play of Butch and bench.What’s that you say, dear reader? Kammron Taylor is UW’s consistent second option? Do not speak to me of Kammron Taylor! I was his biggest fan once, partly because he was in a class of mine, and partly because I was impressed with his driving and shooting abilities. But Taylor’s shot has been inconsistent of late, and he spends entire stretches of games being a non-factor.Taylor’s penchant for not fouling opponents is impressive, but he needs to make his presence felt not by the absence of fouls, but by dropping a few more treys, or keeping defenders busy with his speed and penetration skills. Or hitting last second free throws and/or shots in big (read, Sunday’s) games. Wisconsin needs him to step up.And I need him to do well so I can win a longstanding bet with a friend.Even with the three losses in the last few weeks, the Badgers’ success this season, coupled with a number of recent lackluster performances by Florida, will earn them a No. 1 seed in the NCAA Tournament. While the No. 1 seed is much deserved, the Badgers now find themselves in a position that is a very different from the one when Taylor, Butch and Tucker combined for 73 points against a talented Pittsburgh squad. Struggling for consistent second options, fighting to provide opportunities for the talented Tucker, and bereft of the Polar Bear (sure, we cried for Landry to replace him, but you can’t deny that he’s a legitimate scoring threat and an impact player). Of the No. 1 seeds that will be playing in March, Wisconsin may now be the least prepared.If the Badgers don’t find a way to free up Tucker or score enough without him and replace Butch’s impact, the Badgers tournament experience, No. 1 seed or not, may end up like a Pacman Jones strip club visit. Disastrous.Gerald is a junior majoring in Economics and Middle Eastern Studies. If you’d like to talk about his disappointment with Taylor, or what it’s like being posterized by Landry, e-mail him at [email protected]last_img read more