By: Kathy Kent Toney, President of Kent Business Solutions
Photo by Element5 Digital from Pexels
Are you wondering what the economy might look like, depending on the results of the election? Are you wondering how the outcomes might impact your business?
Then check out my recent interview with Dr. Chris Kuehl, a nationally known economist and economist-for-hire with Armada. He will be discussing the following topic:
Post-Election: 3 Economic Changes You Can Expect
Kathy: Chris, it’s really great to have you with me today!
Chris: Thank you.
Kathy: What is the first of the top three expected economic changes after the presidential election?
Chris: I think the change that we've been most made aware of in the last several months is the shift in the supply chain, because that affects virtually every business…whether they're in the production part of it, or the consumption part. We are seeing a shift in where we get products from around the world. We're seeing shifts in how people handle their inventory as well.
It was only 10-15 years ago that we were completely revolutionized by the Just In Time system. This was such a major breakthrough…companies would not have to manage inventory…things would just sort of show up magically when you needed them.
But that system has broken down, and it was creaking a little before the COVID crisis. During the shutdown, 40% of global cargo was not moving, you had ships that were locked in quarantine and companies started struggling to get their supply.
But beyond all that, we're changing our relationship with China. They were the big supplier, the world's manufacturer and now we're diversifying. Now we’re shipping in from dozens of countries and we’ve changed the way that we supply the economy as a whole. And that's something that's going to be continuing into the coming years, really for many years.
Kathy: Got it. What’s the second change?
Chris: It’s a shift from what we traditionally did both in terms of working and consuming…to the new virtual electronic online version. So, consumers at the beginning of January 2020 were doing about 10% or so of their buying online.
By June of this year, only six months later, that number had jumped to 20%. So, we still see 80% of our buying is not online, but the majority of that 80% is buying services. When it comes to goods, purchasing the online option is even more dominant.
So, companies need to recognize that’s how their product will be consumed, and they're going to have to figure out how they consume online.
And of course, we see the whole work-at-home phenomenon. So, companies that were counting on the fact that everybody was working in one place and you could have spontaneous meetings and everybody knew each other, well, you don't do that now. It's going to be Zoom calls, virtual conferences, communicating by email and working independently without a lot of supervision.
It worked fairly well in the beginning, but that's because the workforce was familiar with each other. Now that you've onboarded new people, the new people don't know anyone except from their Zoom experience and that's very different.
So, businesses are now facing all kinds of new management challenges. We've been trying to build teams for the longest time and now we're trying to do team building virtually, which is much harder. So, I think the shift to an online environment, and all that that implies…means that manufacturers are relying more on technology (robots, cobots, AI etc.) They can’t have people working remotely in the same way that other sectors can and that encourages the use of machines.
Kathy: That sounds good. What’s the third change?
Chris: It’s labor supply. Not only are we working from home, but we're changing the nature of work. Companies that are in sectors like manufacturing, construction, transportation or medical have placed finding an appropriate workforce at the top of their list of concerns for many years. They have been struggling for 10-15 years to find the people they need…the labor shortage has been their big issue and it continues to be.
When we saw 30-40 million people lose their jobs, we thought that this was going to solve the labor shortage. But almost every single person that lost their job, because of the pandemic, were in low-paying service sector jobs.
We had carnage in hospitality, tourism and entertainment. The person that was working in a Marriott Hotel is not going to pick up and suddenly learn how to operate a laser cutter at a manufacturer. The person working at Disney World is not suddenly going to learn to be a framer and start working in construction.
So those labor shortage issues are still there, and the level of sophistication for these new jobs is as high as it's ever been.
And now we're trying to do training in a virtual environment. It’s okay to train many jobs virtually, but how do you train somebody to run a machine virtually? How do you train someone to build in construction virtually? You can't. I mean these are hands-on jobs, and it's going to be a challenge for quite a while to even bring people on from the traditional training centers to trade schools and the community colleges and the like, because they're struggling with how to effectively educate people in these sectors.
So, I think the labor challenge is going to be an ongoing one and that opens up all kinds of other doors… we're looking at an aging workforce, particularly in those sectors like manufacturing and construction. The average age of an industrial welder in the US today is 61 years old. So, we have to replace them. If we don't educate our own young population, we're going to have to rely more on immigration.
In the past, we could bring in people who were relatively untrained and put them through some kind of assimilation process. But now the immigrant that we want is the experienced one, not somebody that has no skills. We already have plenty of people with no skills. We need to bring in skilled people and that's a whole different immigration recruiting challenge.
Kathy: It sounds like that will really impact how we as a country handle immigration.
Chris: Yes, we’ll definitely need to look to other types of systems to make this all work.
Kathy: Without a doubt!
So, I recently heard you on a Zoom call where you discussed different scenarios of Congress and Presidency election results. That was really fascinating! Could you talk about that?
Chris: Yes. Let me start out saying that for business, it matters who the President is to a degree, but most of the real decisions are fiscal and that lies in the hands of Congress.
So, there are three scenarios. The first is highly unlikely…a Republican sweep.
The second is a Blue Wave.
Then there’s the third scenario…the incumbent situation, which is what we have right now…where the Senate stays Republican and you have a Democratic Congress. When you have a split Congress, that kind of ensures a certain amount of gridlock, because whatever one house comes up with the other house opposes.
What’s interesting about the Blue Wave scenario is that it introduces something we have not seen in probably 20 years and that is a real middle, a real centrist block. If the Democrats actually do win in the Senate, it's going to mean that Democrats won in states that are fundamentally red or at least purple. So, in order for the Democrats to have won those states, they would have had to put up moderate conservative Democrats; otherwise, they would not have won.
So, you're going have this block conceivably of centrist Democrats, maybe even a few centrist Republicans. Traditionally in a balanced system, the center dominates, because both sides need them. If you look at all the multi-party states around Europe, often the smallest party controls policy, because they're right in the middle, and the party to the left and to the right both want them.
So, the party in the center would be saying things like this: “What are you offering? How much is it going to be to work for you? If you want me on your side, you need to pay attention to my policies.” You’ll end up with this kind of tail-wagging-the-dog scenarios and that could be what we're looking towards…a more aggressive center block.
Kathy: That’s really interesting. Could you give an example of that?
Chris: Sure. Since I'm from Kansas, here’s a good illustration of how the politics have changed. I don't know how the Kansas Senate race is going to go, but look who the Democrats have as their candidate…a former Republican, Barbara Bollier. She was a Republican in the State Senate and switched parties. She has already sent messages to the other Democrats saying something along the lines of this: “If I win, do not expect me to be a big fan of AOC and the others. I'm not that kind of Democrat. I'm not a Bernie Sanders type. I'm going to be a moderate.” If she had ran as a Bernie Sanders clone in Kansas, she’d get only five votes!
So, that's happening all over the country, and that can have implications for various policies. Say, if there’s a green initiative, discussion and outcome is going to be more tempered.
Kathy: The centrist element is interesting. I just learned something new today!
So, in closing, are there any takeaways you’d like to share?
Chris: Well, I think the most important takeaway is what we expect for the economy in the coming year. If you look at almost every prediction, whether it's an optimistic or pessimistic, the good news is that they all kind of converge towards the end of next year.
So even if you have the pessimistic scenario, which is a definite decline in 2020 and slow recovery in 2021, by the end of the year, you're back to where we were at the beginning of 2020.
If you take the optimistic scenario, it sees growth starting now and carrying into 2021, but ends up at the same place.
So, the overall takeaway from an economist’s perspective is that it’s probably going to be a 1-1 ½ yearlong recession phenomena. Then by the end of 2021, we'll be feeling pretty solid in terms of our economic growth.
We will have seen a decline in some of the unemployment numbers as well. We'll be back to where we were towards the end of 2019-2020. That, of course, depends predominantly on two things:
1. Gaining Some Control Over the COVID-19 Outbreak
It also depends on consumers, picking up where they left off. All evidence is that consumers are willing and ready to do that. So, I think we can count on the consumer.
2. Developing a Timely Vaccine
We now have nine different vaccines that are in Phase 3 testing. Three of those are from the US, one’s a joint venture with the Germans, one is in the UK, one is in Japan and the rest are in China. There are several companies that are already producing them and are anticipating good news from the Phase 3 trials. So, I think by mid next year the big issue is going to be how many more people do we need to get the vaccine to.
Kathy: Chris, I think that’s a wrap. Thanks for joining us today and sharing all this great info.
Chris: My pleasure.
With this ever-changing economic and business landscape we’re navigating, are you wondering what your next steps might be to increase your profitability?
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Thanks for tuning in!