Many Americans may soon be reporting to their financial doctor to report symptoms of financial whiplash. It’s no surprise when we look at what has transpired over the last four months. In March as Covid-19 began its first wave, Americans witnessed the first coordinated global lockdown of business and life in the history of the world. Many businesses shut their doors. Many consumers hunkered down at home. The economic effects were tragic. The unemployment rate rose to nearly 15% – the highest since the Great Depression. Small businesses in small towns all over the country were unable to reopen. Municipal governments laid off over 1.5mm workers to address budget shortfalls. It isn’t hard to see that lockdowns have come at an incredibly high economic cost.
But then the world began to reopen at various speeds in various places. Green shoots began to sprout as people began to travel again and as rehiring pushed the unemployment rate back down to 11.1% by the end of June. Retail sales came roaring back as pent up demand was unleashed.
The second Covid-19 wave, which seems to have hit places that were less effected by the first wave, has slowed things down again. This is likely to be confirmed by the July economic data. If you’ve ever ridden a roller coaster in which you are flying down a hill only to come to a screeching halt, only then to start moving swiftly again, followed by yet another halt – you have a sense of what the U.S. economy is experiencing. Think Seven Dwarves Mine Train at Disney World (one of my favorites). Because of the nature of Covid-19, and the typical political response to its resurgence, I believe we may see this start and stop pattern for the remainder of the year. Until herd immunity is reached, the strength of the economy is likely to ebb and flow – particularly as schools get back into session in coming weeks. If the recovery continues, it is likely to be in a “two steps forward, one step back” fashion.
How should one respond to such an unpredictable economy?
- Craft a flexible course that can pivot on a dime. With variables changing by the week, plans must be penned with pencil rather than set in stone. By all means, keep planning. But as the sailor makes course corrections while on the water, be prepared to make course corrections as economic circumstances dictate.
- Keep doing business, but keep some powder dry. Now is not the time to hibernate. Now is not the time to seek to avoid risk. Now is the time to take thoughtful and strategic risks. At the same time, leaving room for a larger reserve and greater margin for error is wise and prudent.
- Focus on what can be controlled rather than what can’t. Crises like Covid-19 are hard for control freaks. There are so many things happening that are beyond anyone’s control. The response to these developments is within one’s control. Spend energy on decisions within the scope of your influence. Affect the things you can affect. If you are a Christian (as I am), trust the Lord to do what is good, even though you might now know what “good” looks like.
We always stand ready to assist our clients in their borrowing, managing and savings goals in this volatile environment. The next time you have a decision to make about money, let us help you make it. In the meantime, God bless you.
Chad P. Wilson, CFP®