The predictable — and unexpected — economic consequences of COVID.

As the United States emerges from the COVID crisis, the shape of the American economy is coming into clearer view.  Part of that picture is the growing realization that lockdown policies, vaccination rollouts and government stimulus actions have created imbalances in many sectors — imbalances that will time to return to equilibrium.

Everyone knows the business sectors that have been hammered “thanks” to COVID:  hospitality and foodservice, travel and tourism, the performing arts, sports and recreation, commercial real estate. 

At the same time, other corners of the economy have blossomed — home remodeling, consumer electronics … and the public sector.  This last one isn’t a function of any kind of increased demand, but rather pandemic-long guaranteed continuing income to workers on the public payroll.

As we emerge, factories and the building trades are finding it difficult to ramp up their operations to meet growing demand, hampered in part by supply chain issues and shortages of raw materials and parts sourced from offshore suppliers.  As of now, most economists believe that such shortages won’t turn out to be long-term problems — but we shall see over time if this is actually the case.

Another imbalance is what’s been happening to the labor force.  Government stimulus checks and unemployment benefits have been sufficiently robust so as to depress the number of workers seeking a return to employment in certain sectors — particularly in the service industries.  As just one example, restaurants everywhere are finding it more than a little difficult to staff their reopened locations.

The latest forecasts are for the U.S. economy to grow at a blistering pace during the balance of 2021 — perhaps as high as an 8% or 9% seasonally adjusted rate of growth.  That would be historic.  But not everyone is going to benefit.

In a recent Wall Street Journal article, David Lefkowitz of UBS Global Wealth Management points out that “the very sudden stop to the economy and then the very quick restart has created a lot of havoc — a lot of businesses have gotten caught flat-footed.”  But beyond this is the very real likelihood that inflation will emerge as a key factor in the economy, for the first time in more than 40 years. 

Viewed holistically, the situation in which we find ourselves is one where many new and unusual “ingredients” have gone into the economy over the past year, resulting in an economic brew that is just as unusual — and perhaps even unique in our history. 

An artificially depressed economy due to government fiat … followed by massive economic stimulus paid for by expanding the money supply … coupled with sudden demand propelling certain industries over others due to government-driven dictates: for sure it’s a new mix of factors.  Considering this, I’m not at all sure that very many people inside or outside of government have a clear handle on what the next 18 months will actually bring.

But that doesn’t mean we can’t speculate about it, right?  In the comment section below, please share your perspectives on what’s in store for the U.S. economy.  I’m sure others will be interested in reading your thoughts.

COVID Casualty: Homogenous Corporate Swag

Corporate promotional products and branded swag have been a big part of business for decades.  The Advertising Specialty Institute reports that in 2019, promo products expenditures in North America amounted to nearly $26 billion, amazing as that figure might seem.

But that was before the coronavirus pandemic hit, shutting down trade shows and forcing the cancellation of events (or migrating them online).  All of a sudden, demand for branded tchotchkes, hats, t-shirts, tote bags and the like pretty much disappeared.

However, just because corporate swag fell off the radar screen in 2020 doesn’t mean that corporate freebies for customers and prospects are a thing of the past.  But COVID seems to have changed how some marketers feel about these items — and given them reason to rethink how branded merchandise can do a better job of actually nurturing customer relationships.

Because of this introspection, the days of ubiquitous, unlimited “homogenous” corporate swag may well be numbered — and that wouldn’t be such a bad thing.  For those of us who have participated in industry trade shows, corporate events and the like over the years, when you consider how much stuff is given out to people who promptly discard the items because they aren’t something they either needed or wanted to have, coming up with a different approach was bound to fall on fertile ground.

Enter “gifting-as-a-service” firms.  Several of these such as Snappy App, Kitchen Stadium and Alyce have sprung up in recent times.  They operate under business models that are as simple as they are elegant.  Think of them as “choose your own swag” concepts wherein recipients are given the opportunity to pick which items they prefer – and in some cases the size and color, too.  Then those items are shipped directly to the recipient’s home or office.

Being given a card to check off their item of choice it may not pack the same impact as being given the item right there on the spot, but it actually makes life easier for everyone. No longer does a trade show attendee have to lug the item around the exhibit floor and back to his or her hotel room — nor pack it for the flight home.  The exhibitor doesn’t need to ship swag merchandise to the show – hoping that the quantity shipped isn’t substantially higher or lower than the number of items actually needed.

Such “gifting-as-a-service” programs provide a better experience for recipients, too, because people can select something they actually want from among a selection of items.  And for companies, it could actually turn out to be less costly in the end because they wouldn’t need to be pay for gift items that aren’t redeemed.

Such programs are versatile enough to work across all types of activities – including online as well as in-person events.  They can also be offered as rewards to loyal customers completely apart from any particular show or event.

One final plus – or at least a hope – is that less swag will end up in the trash before it’s even had the chance to be worn or used.  In a world where there’s increasing focus on environmental sustainability, that has to count for something, too.

COVID Casualty: Office Gossip

Nearly everyone dislikes “office politics.”  But does day-to-day employee gossip rise to that level?  And have we lost something actually beneficial in the wake of remote work limiting our in-person interactions?

Ever since we were children, most of us have been conditioned to regard gossiping as a negative trait that any caring person should avoid doing. 

At its core, the definition of the term is “people speaking evaluatively about someone who isn’t there.”  But gossip can also relate to talking about rumors and conjecture regarding topics that go beyond just people.

Historically, gossip or the rumor mill in the office often served as a means by which anodyne-sounding corporate announcements would be subjected to a healthy degree of “whispered conversation and conjecture.”  Or, as one DC-area employee put it in a recent Wall Street Journal article, ”You hear the surface story, and then you learn what the real story was – and that’s the gossip.”

In the months since mandatory office workplace lockdowns have been imposed, the gossip mill has fallen on hard times.  Instead of serendipitous conversations happening in the lunchroom, in hallways or following group meetings, many workers are spending their days with just one person – themselves.  Or they might be interfacing via Zoom meetings with the same handful of people from their core work team, where it’s always the same information being recycled among the same group of people.

Even for employees who have returned to working at their corporate offices, hybrid schedules often mean that there are far fewer daily interactions happening with other employees.

On one level, the reduction in gossiping may be reducing workplace “drama” and helping people focus better on their actual work tasks.  Although the evidence is murky, productivity studies do appear to show an uptick in employee productivity since the onset of the COVID-19 pandemic.

On the other hand, in a recent survey of ~500 employees and business owners conducted by international legal consulting firm Seyfarth Shaw, the item that respondents missed the most after a year of remote working was “in-person and grown-up workplace conversations.”

For senior leadership, office gossip has been one way to rely on a kind of “early-warning system” about corporate initiatives or directives.  In every office there seem to be a few people who have the pulse of the organization – it might be an executive assistant or some other staff support functionary – who other people feel comfortable confiding in and who in turn can communicate “the upshot” to the top brass.  While difficult to quantify, that sort of dynamic really counts for something.

Of course, human nature being what it is, office gossip is never going to go away completely.  But Skype or Zoom calls feel forced, and typing out thoughts or conjecture on IMs or e-mails is borderline-weird and feels inherently risky.  

On balance, do you welcome the decline of face-to-face “gossip conversations” with colleagues — or do you suspect that a useful guerilla communications conduit has been lost?  Please share your perspectives with other readers.

Robots become humans – at least in the eyes of the law.

It had to happen:  New state laws are now classifying robots as humans – specifically when it comes to traffic laws.

With the proliferation of delivery robots in quite a few urban areas, the issue was bound to arise.  Car and Driver magazine reports that the state of Pennsylvania now defines delivery robots as “pedestrians” under a newly implemented law.

More specifically, the Pennsylvania legislative measures stipulate that “autonomous delivery robots” can lawfully maneuver on sidewalks, roadways and pathways.  They’re allowed to carry cargo loads as heavy as 550 lbs. at speeds up to 25 mph. on roadways.  (On pedestrian pathways and sidewalks, their speeds are capped at 12 mph.)

Pennsylvania is just the latest state to pass new laws regulating autonomous driving and flying technologies.  Indeed, there are now a dozen states that allow delivery robots access to roads as well as pedestrian pathways.

A gita and its owner out for a stroll.

The new laws raise some interesting questions.  Undeniably, delivery robots are a popular option for businesses and logistics companies; in a relatively short period of time their deployment has evolved well-past that of being merely a “novelty factor.”  “The sidewalk is the new hot debated space that the aerial drones were maybe three or five years ago,” reports Greg Lynn, CEO of Piaggio Fast Forward, a robotics design firm that offers a suitcase-sized robot called gita that follows its owner around.

But deploying robots onto street- and sidewalk-grids that were mapped out decades ago – when there were no expectations of the sci-fi scenarios of autonomous vehicles – can be quite problematic from a safety standpoint.

Of course, we’ve faced this issue before – and not so very long ago – with the emergence of the Segway “people mover.”  Those contraptions have caused more than a few problems (accidents and injuries) in urban centers around the world, leading some European center-cities to effectively ban their use — such as in Budapest and Barcelona

And in the city of San Francisco – no technology backwater – delivery robots have been prohibited from operating on most city streets.  Municipal leaders have cited potential safety concerns.  Moreover, the National Association of City Transportation Officials (NACTO) has gone on record stating that robots “should be severely restricted, if not banned outright.”

One thing’s for sure:  With the fast-growing phenomenon of delivery robots and other autonomous vehicles, the whole notion of “sharing the road” has taken on an additional dimension. 

Do you have any interesting reports to share from what you may have encountered in your own town or region?  Please share your observations with other readers.

The consequences of COVID on office space leasing.

One of the many ripple-effects of the COVID-19 pandemic is the effect it’s had on the demand for commercial office space. 

In a word, it’s been pretty devastating. 

The numbers are stark.  According to an estimate published by Dallas-based commercial real estate services and investment firm CBRE Group, Inc., as of the end of 2020, nearly 140 million sq. ft. of office space was available for sublease across America. 

That’s a 40% jump from the previous year.  Not only that, it’s the highest sublease availability figure since 2003, which means the situation is worse than even during the Great Recession of 2008.

Of course, it isn’t surprising to expect that more sublet space would become available during periods of economic downturn, when many businesses naturally look for ways to cut costs.  But those dynamics typically reverse when the economy picks up again.  This time around, it’s very possible – even probable – that the changes are permanent.

The reason?  Many companies that reduced their office space footprint in 2020 didn’t doing so because they we’re suffering financially.  It was because of government-mandated lockdowns.  And now they’re expecting many of those employees to continue working from home, either part-time or full-time, after the pandemic subsides. 

Employee surveys have shown that many workers prefer to work from home where they can avoid the hassle and expense of daily commuting.  It’s understandable that they don’t want that to change back again.  In many business sectors which don’t actually need their workforce be onsite to produce revenue, companies are simply ratifying a reality that’s already happened.  Accordingly, they’ve changed their expectations about employee attendance at the office going forward.

Commercial landlords are now feeling the long-term effects of this shift in thinking.  Rents for prime office space fell an average of 13% across the United States over the past year.  In places like New York and San Francisco the drop has been even steeper — as much as a 20% contraction.

For many of the lessees, it’s less onerous to sublease space to others rather than attempt to undertake the messy business of renegotiating long-term lease contracts with landlords.  Still, there’s pain involved; sublease space historically comes with a significant discount — around 25% — but with the amount of sublet space that’s been coming onstream, those discounts may well go even deeper due to the lack of demand.

The cumulative effect of these leasing dynamics is to put even more downward pressure on broader rental rates, as the deeply discounted space that’s available to sublet puts more pressure on the price of “regular” office space.  It’s a classic downward spiral.

Is there a natural bottom?  Most likely, yes.  But we haven’t reached it yet, and it’ll be interesting to see when — and at what level — things finally even out.  In the meantime, it isn’t a very pretty picture.

What are you witnessing with regards to office space dynamics within your own firm, or other companies in your business community?  Please share your thoughts below.

Advertising’s COVID Consolidation

The triumvirate of Amazon, Facebook and Google surge to even bigger dominance in the field.

Fueled by their ability to target audiences by attitudinal and intentional factors in addition to demographic characteristics, the “Big Three” platforms of Facebook, Amazon and Google were already heavy hitters in the advertising realm well-before COVID-19 burst on the scene.

To wit, they accounted for nearly 50% of all advertising expenditures in the United States in 2019.

Then the coronavirus pandemic hit, resulting in changes overnight in how people work and live.  Thanks to lockdowns — and with more people than ever glued to digital platforms for everything from business communications to entertainment and online shopping — advertisers found the audience-targeting capabilities of the Big Three platform too irresistible.

So in 2020, even as every other kind of ad spending shrank – including double-digit drops seen in newspaper, TV and billboard advertising – online advertising continued to grow.  Even more significantly, the biggest gains in online advertising accrued to the Big Three tech giants rather than to digital media sites and publishers that sell online ads.

When the dust settled, 2020 turned out to be the first year the Big Three swept up more than half of all ad dollars spent in the United States, according to an analysis by ad agency GroupM

… And in online advertising specifically, the Big Three’s share jumped from an already dominant ~80% in 2019 to nearly 90% in 2020. Ad industry veteran Tim Armstrong (formerly in executive positions at AOL and Google), puts it succinctly:

“[The] companies that are data science-driven get stronger and faster with a tailwind of usage — and COVID was a hurricane.”

The coronavirus environment proved to be fertile ground for the Big Three even in areas previously inhospitable to them — including such categories as store promotions, catalogues and couponing.

As the nation emerges from the COVID environment in the coming months, one wonders if the newly dominant position of the Big Three will retrench in any meaningful way.  Speaking personally, I wouldn’t bet money on it.  But what are your thoughts?

Have we finally reached “peak oil”?

Likely not in crude oil consumption, but the IEA is now projecting that demand for gasoline will never return to its pre-COVID level.

This past week the International Energy Agency (IEA) issued an intriguing forecast about future of gasoline consumption.  If true, it means that the world will have reached its peak demand for gasoline back in 2019, and won’t ever again return to that level.

Of course, with the advent of electric vehicles, the day when gasoline demand would begin to decline was bound to come sooner or later.  But the COVID-19 pandemic has hastened the event. 

During the widespread restrictions on work and travel imposed by most governments in 2020, daily gasoline demand dropped by more than 10%. Some of that demand is expected to return, but the global shift towards electric vehicles — not to mention continuing improvements in fuel efficiency in conventional gasoline-powered vehicles themselves — means that any growth in demand for gasoline within developing countries will be more than offset by these other forces.

In 2019, only around 7 million electric vehicles were sold worldwide, but that number is expected to grow steadily, reaching 60 million annually just five years from now.  Several major car manufacturers have committed to selling electric vehicles exclusively in future years, including Volvo (committed to all-electric vehicle sales by 2030) and GM (by 2035).

As for the demand for crude oil, it is expected to rebound from 2020’s dip to reach as much as 104 million barrels per day by 2026, which would be around 4% higher than the usage that was recorded in 2019.  Asian countries – particularly China and India – will be responsible for all of that increase and more, even as some developed nations are expected to see a drop in their demand for crude.

The implications of these forecasts are far-reaching – as are the questions they raise.  How well will the legacy car companies perform in comparison to the new all-electric car company upstarts?  Can they remake themselves quickly enough to preserve their market position vitality? 

What will the effects of lower demand for gasoline – and a lower pace of growth in demand for crude – be on global climate change?  Dramatic? … or only minimal?

What do the prospects of lessening demand for crude do to the economies (and politics) of countries like Saudi Arabia, Iran, Venezuela and other key OPEC nations?  Will lowered demand lessen geopolitical tensions? … or contribute to even bigger ones?

If you have thoughts or perspectives on these points, please share them in the comment section below.

America turns the corner on air travel.

This past Sunday a major milestone was reached in U.S. air travel.  The Transportation Security Administration reported that 1.34 million people passed through checkpoints at U.S. airports on that day. 

This was slightly more passengers than the TSA had screened on the comparable Sunday a year ago. But what makes the figure particularly newsworthy is this:  It’s the first time that the number of people flying in the United States has eclipsed the year-ago figure since the onset of the coronavirus pandemic in this country.

Even more encouraging, Sunday was the fourth straight day that the TSA had reported more than 1 million people passing through its checkpoints. 

The TSA’s seven-day moving average of passenger traffic has now reached its highest level since March 2020, when air travel essentially collapsed in the wake of the spread of COVID-19.

Of course, this doesn’t mean that the amount of air travel is anything near the levels that were typically seen in 2019, the year before the pandemic struck.  Indeed, daily traffic is still off by 45% to 55% compared to two years ago.

Ed Bastian

Looking back over the past year, there have been a few occasions where air traffic has edged higher, only to recede again.  But those brief upticks were charted during the holidays.  This time, the recovery seems real, according to Ed Bastian, the CEO of Delta Air Lines. 

Southwest Airlines reports the same dynamics, citing increased leisure trip bookings.

On the other hand, business travel continues to lag — big time. But taken as a whole, the market is looking up. And that’s the best news the U.S. airline industry has had seemingly in eons.

What about you? How have your feelings evolved regarding air travel, and are you making plans for air travel in the coming weeks or months?

Changing the “work-live location paradigm” in the wake of the coronavirus pandemic.

As the COVID-19 pandemic grinds on, its long-term implications on how we will live and work in the future are becoming clearer. 

Along those lines, a feature article written by urban studies theorist Richard Florida and economist Adam Ozimek that appeared in this past weekend’s Wall Street Journal explores how remote working has the potential to reshape America’s urban geography in very fundamental ways.

Just before the first lockdowns began in April 2020, fewer than 10% of the U.S. labor force worked remotely full-time.  But barely a month later, around half of the labor was working remotely.  And now, even after the slow easing of workplace restrictions that began to take effect in the summer of 2020, most of the workers who were working remotely have continued to do so.

The longer-term forecast is that perhaps 25% of the labor force will continue to work fully remote, even after life returns to “normal” in the post-COVID era.

For clues as to why the “new normal” will be so different from the “old” one, we can start with worker productivity data.  Stanford University economist Nicholas Bloom has studied such productivity trends in the wake of the coronavirus and finds evidence that the productivity boost from remote work could be as high as 2.5%. 

Sure, there may be more instances of personal work being done on company time, but counterbalancing that is the decline of commuting time, as well as the end of time-suck distractions that characterized daily life at the office.

As Florida and Ozimek explain further in their WSJ article:

“Major companies … have already announced that employees working from home may continue to do so permanently.  They have embraced remote work not only because it saves them money on office space, but because it gives them greater access to talent, since they don’t have to relocate new hires.”

The shift to remote working severs the traditional connection between where people live and where they work.  The impact of that change promises to be significant for quite a few cities, towns and regions.  For smaller urban areas especially, they can now build their local economies based on remote workers and thus compete more easily against the big-city, high-tech coastal business centers that have dominated the employment landscape for so long.

Whereas metro areas like Boston, San Francisco, Washington DC and New York had become prohibitively expensive from a cost-of-living standpoint, today smaller metro areas such as Austin, Charlotte, Nashville and Denver are able to use their more attractive cost-of-living characteristics to attract newly mobile professionals who wish to keep more of their hard-earned incomes. 

For smaller urban areas and regions such as Tulsa, OK, Bozeman, MT, Door County, WI and the Hudson Valley of New York it’s a similar scenario, as they become magnets for newly mobile workers whose work relies on digital tools, not physical location.

Pew Research has found that the number of people moving spiked in the months following the onset of the coronavirus pandemic – who suddenly were relocating at double the pre-pandemic rate.  As for the reasons why, more than half of newly remote workers who are looking to relocate say that they would like a significantly less expensive house. The locational choices they have are far more numerous than before, because they can select a place that best meets their own personal or family needs without worrying about how much they can earn in the local business market.

For many cities and regions, economic development initiatives are likely to morph from luring companies with special tax incentives or other financial perks, and more towards luring a workforce through civic services and amenities:  better schools, safer streets, and more parks and green spaces. 

There’s no question that the “big city” will continue to hold attraction for certain segments of the populace.  Younger workers without children will be drawn to the excitement and edginess of urban living without having to regard for things like quality schools.  Those with a love for the arts will continue to value the kind of convenient access to museums, theatres and the symphony that only a large city can provide.  And sports fanatics will never want to be too far away from attending the games of their favorite teams.

But for families with children, or for people who wish to have a less “city” environment, their options are broader than ever before.  Those people will likely be attracted to small cities, high-end suburbs, exurban environments or rural regions that offer attractive amenities including recreation. 

Getting the short end of the stick will be older suburbs or other run-of-the-mill localities with little to offer but tract housing – or anything else that’s even remotely “unique.”

They’re interesting future prospects we’re looking at – and on balance probably a good one for the country and our society as it’s enabling us to smooth out some of the stark regional disparities that had developed over the past several decades.

What are your thoughts on these trends?  Please share your perspectives with other readers.

Tissue issue: Explaining the curious connection between the coronavirus pandemic and toilet paper shortages.

How did the pandemic drive consumers to purchase reams and reams of toilet paper?

Just after coronavirus cases started appearing in Europe and North America, two things began to happen.  One was restrictions on people’s movements — soon leading to lockdowns nearly everywhere.

The other was a run on toilet paper that seemed to go on for months and months.

While other necessities suffered temporary product shortages as well, toilet paper in particular seemed to be affected the most. And as its disappearance from the store shelves became widely reported, the shortage began to take on near mythic proportions.

Photos of barren shelves were plastered all over the news and shared on social media – even giving the rise to a flourishing resale market in which the price of TP skyrocketed.  

It’s little wonder that at the same time, thefts of toilet paper began to be reported across the globe.

Surveys conducted among consumers in North America and Europe found more than a few people admitting that they had begun hoarding toilet paper – more than 17% of North Americans and nearly 14% of Europeans acknowledging so.

Just what is the correlation between a health crisis like COVID-19 and the sudden unavailability of a product like TP, of all things?

It’s the kind of question that no doubt intrigues researchers in the field of consumer behavior.  In January, a team of five analysts in Spain published a review of the available research on the topic.  Their reporting suggests that several factors were likely at work – some more significant than others.  Here is a synopsis of what they reported:

Potential Factor #1:  Diarrhea

As coronavirus cases began to rise, more people were experiencing increased gastrointestinal symptoms and diarrhea — either induced by stress or by the COVID-19 itself.  However, medical studies suggest that only about 13% of people who contract COVID have significant diarrhea as one of the symptoms or side effects.  That 13% is actually a relatively low proportion of COVID patients, and therefore can’t explain much of the global surge in toilet paper purchases.  Verdict:  Unlikely factor.

Potential Factor #2:  Actual Product Shortages

A more likely explanation for the run on toilet paper is that the product was merely one of numerous necessities that consumers went out to purchase in abundance as lockdowns began to take effect around the world.  But whereas items like canned foods were able to be more readily restocked, toilet paper wasn’t.  In this scenario, supply chains weren’t prepared for the sudden the shift in demand from commercial-quality to residential-quality toilet paper, paper towels and such.  As a result, it took longer for production to retool and meet the increased demand.  Verdict:  Somewhat more likely factor.

Potential Factor #3:  Fear — Magnified by the Media

As the news media began to report on empty shelves, toilet paper buying patterns that had initially been in line with those seen for other sought-after goods now reached frenzied proportions.  The “FOMO factor” (fear of missing out) increased bulk buying and hoarding behaviors even more.

Adding to the fevered environment was an additional factor, as explained by Dr. Brian Cook, who is a member of the Disaster Risk Reduction initiative at Australia’s University of Melbourne:

“Stocking up on toilet paper is … a relatively cheap action, and people like to think that they are ‘doing something’ when they feel at risk.”

The TP buying craze has been seen before.  Toilet paper shortages were recorded during the political crisis in Venezuela in 2013 … following the terror attacks on the Twin Towers in New York City 2001 … and even as far back as the 1973 OPEC oil crisis.

I guess the bottom line is this: When the sh*t hits the fan, it’s the toilet paper that wipes out …