Friday, August 14th, 2020

‘Economic Pain’ felt for months, recovery quick

Posted: Friday, March 27, 2020

Source: Inside Indiana

A business economist at the Kelley School of Business at IUPUI says the stay at home order issued Monday by Governor Eric Holcomb was an expected ratcheting up of social controls that is being seen across the country. Phil Powell, associate dean of academic programs at the Kelley School, says the order will continue to contribute to a “very deep economic pain” that will be felt over the next two to three months.

In an interview with Inside INdiana Business, Powell said looking at Europe and Asia, there has been about a two-week ramping up period, followed by six to eight weeks of lockdown before things start to ease up.

“For small businesses in Indiana, the goal is to survive, to go into hibernation and to just hit the pause button,” said Powell. “That’s what the Indiana economy is doing right now is we’re hitting the pause button and if I’m a small businessperson, I’ve got to figure out how I survive this pause.”

Powell says for small business owners that means drawing upon existing lines of credit, expanding lines of credit, reducing or erasing variable expenses and paying those expenses that are required to stay alive, such as loans and lease payments.

“For some small businesses, what we’ve been recommending is that they actually reach out to their creditors, they reach out to their leasing agents and say, ‘Hey, could we have a creative arrangement where I pay a much lower payment for the next three or four months in exchange for higher payments later in the year?’ I think small businesses will find that leasing agents and banks and creditors are going to be pretty forgiving because they have as much interest in the business staying solvent as the owner does.”

Larger companies are also feeling the pinch of the pandemic with major automakers and recreational vehicle makers and other manufacturers halting production. Powell says those moves, which also affect smaller suppliers that support the larger corporations, “catastrophic.”

“What we’re experiencing is nothing we’ve experienced in generations. It’s a negative multiplier effect; it’s just going to have a rolling impact on this economy for two to three months and given that Indiana is so dependent upon the manufacturing sector, this puts everything to a halt. Then it’ll take another three months to recover, so this is a six-month impact that we’re talking about.”

Powell says to understand what the economic recovery period will look like, one must look at what is happening in China and South Korea.

“They’re opening up and getting back to business very slowly. The big fear in China and South Korea right now is a second outbreak and there’s some clues that that is a real risk. So the social controls, even though the cases peak, you want those coronavirus cases to come down and after they come down, that’s when the governor might think about reversing the stay at home order and then you’ve got health officials watching to see if there’s going to be a second outbreak.

Powell says businesses need to be ready for when customers do come back, because they’re going to come back fast.