A waiter wearing a protective mask serves a drink to a customer in the outdoor dining room of a restaurant in Saint Petersburg, Florida, Monday, May 4, 2020.
Zack Wittman | Bloomberg via Getty Images
The coronavirus pandemic virtually shut down the US economy in March and April. But in the past two weeks, many business leaders and investors from all sectors have said they are seeing a recovery in business. At the very least, it looks like the deep recession has bottomed out.
Uber CEO Dara Khosrowshahi said more people have requested rides in the past few weeks. Car sales have started to rebound, according to data from J.D. Power. And some retailers, including Costco and CVS Health, said that pedestrian traffic is increasing in stores.
But the results of the pandemic are important and will make the recovery complex. As the economy reopens in some states, people are slowly returning to stores, restaurants and other businesses – but this carries the risk of a new epidemic.
More than 80,000 Americans have died after contracting Covid-19, according to data compiled by NBC News. In parts of the country, coronavirus cases and hospitalizations continue to increase. Without a vaccine or treatment, people are still reluctant to go to public places.
At the same time, a sharp increase in job losses has thrown a veil on short-term consumer spending. Unemployment in the United States climbed to 14.7% in the April Jobs Report, breaking records from the post-World War II era.
Technological optimism: “signs of stability”
Tech companies expressed cautious optimism about the March quarter profit calls, suggesting that things started to improve in April after an alarming decline in March.
Apple CEO Tim Cook told Josh Lipton of CNBC: “There was a big and very steep fall in February. It started to recover in March, and we saw an additional recovery in April. So that leaves room for optimism. “
Alphabet, Google’s parent company, and Facebook, whose businesses depend primarily on online advertising, said the decline in March was steep, but suggested things were not getting worse.
Alphabet CFO Ruth Porat told investors: “The drop in our search and other advertising revenues was brutal in March, and although we are seeing early signs of user feedback at this point more commercial behavior, sustainability or monetization is not clear. it will be. ”
In its publication of results, Facebook said”We saw signs of stability in the first three weeks of April, when ad revenue was roughly flat compared to the same period a year ago, down from 17% growth year-on-year in the first quarter of 2020. “
In Microsoft’s March quarterly earnings report, the company said the coronavirus “had minimal net impact on the company’s total revenue” during the quarter, but cautioned that the “effects of COVID- 19 may not be fully reflected in financial results until future periods. ”
Aside from the giants, some small tech companies also seemed cautiously optimistic. Khosrowshahi of Uber acknowledged that the company’s ride activity was down 80% from last year in April, but then said there were “green shoots leading to optimism”, noting that the volume of journeys made had started to increase again in the second half of April and in early May.
Uber Lyft’s rival painted a similar picture, saying this turnover increased by 13% between the week ended April 5 and the week ended May 3 – although this increase was on a very small basis after a huge drop in March.
Automotive industry: “We are above the worst”
Automakers saw signs of a rebound sooner than many initially expected when the coronavirus started devastating the industry in March. Sales remain down more than 10% from a year ago, J.D. Power reports that there have been four consecutive weeks of retail sales growth until May 3.
“The good news is that we continue to see evidence that we are above the worst and that we are firmly recovering,” said Thomas King, president of data and analysis at J.D. Power. The company has slowly raised its low-end sales forecast this year from around 12 million to 13 million; high-end forecasts remained stable around 14.5 million. Sales were 17 million in 2019.
General Motors CEO and President Mary Barra told investors last week that it was “too early to say” what kind of recovery the auto industry will experience in the United States, but there is reason to optimize. In China, where Covid-19 started and closed its activities for car manufacturers at the end of January, the industry is recovering.
“We think it’s very good that we’re seeing a recovery in China that looks more like a V-shaped recovery, but we’re not counting on that,” said Barra. “I think it is too early to say, but we are very positive about what we are seeing happening in China. And we even see a slight increase after the trough in North America, especially the United States, which was not as low as in China. “
In the United States, softer home orders for auto retailers and consumers wishing to take advantage of large discounts and 0% financing offers for up to 84 months contributed to the faster rebound than planned.
When states began to promulgate orders, some banned all sales, even online. All of these states have since relaxed these orders to at least allow online sales. J.D. Power reports that markets such as Detroit, Miami and New York continue to recover, while areas such as Phoenix and Dallas remained resilient during the pandemic.
Mike Jackson, CEO of AutoNation, the country’s largest auto retailer, told CNBC’s “Squawk Box” on Monday that he was “comfortable” with “declaring that the auto recovery is underway”.
Despite optimism, the auto industry is expected to sell millions of cars less this year due to the coronavirus. Before the pandemic, experts expected vehicle sales in the United States to be around 16.8 million.
Darker outlook for restaurants, retail and air travel
Declines in restaurant transactions begin to reverse after hitting nadir in mid-April, but fast food restaurants are the only segment of the restaurant industry that is poised to return to pre-pandemic sales . Comparable store sales in fast food restaurants fell less than 2% in the week ended April 26, according to industry tracker Black Box Intelligence.
McDonald’s and Wendy’s executives said in their first quarter earnings calls that consumers were turning to familiar brands and products, such as the Big Mac and Frosties, during a period of uncertainty. Fast food chains, with their inexpensive offerings, are also best placed to weather the recession.
The outlook for the rest of the restaurant industry is bleaker. The National Restaurant Association estimates that $ 80 billion in sales were lost until April and that losses could reach $ 240 billion by the end of the year. A survey of small businesses in April by the National Bureau of Economic Research estimated that restaurants will only have a 30% chance of survival if the crisis lasts four months.
Retailers are still waiting to see how customer concerns about safety and tighter budgets can influence their purchases.
After initial storage of toilet paper, cleaning supplies, and more, Walgreens and Target both saw sales decline in late March when shelters were ordered on site. Costco had its worst sales month in more than a decade in April, despite its large aisles of frozen food and oversized cleaning products.
Customers’ purchasing habits have also changed, as they move towards necessities and away from higher margin services. Walgreens has seen a decline in purchases of beauty products. Target recorded a decline in sales of clothing and accessories. And Costco said it was selling less luggage, jewelry, and clothing.
But David Sherwood, Costco’s assistant vice president of finance and investor relations, said in a registered investor appeal that the tide was beginning to turn. He said in April that the retailer “saw a week-over-week improvement in sales and traffic for the four weeks.”
Target said it saw a “significant” recovery in sales from April 15. And CVS Health chief operating officer Jonathan Roberts said last week on a results call that if all categories in the drugstore chain were down in April after rising in March, they are ” is starting to see sales improve “as orders for home housing increase.
In the air travel industry, signs of rising demand are beginning to appear. But they are modest, and airline leaders have warned that they expect to come out smaller this fall, despite billions of federal aid. As of Friday, 215,444 people passed through security checkpoints at the U.S. airport, according to the Transportation Security Administration. It was the highest number since March 25.
In mid-April, CEO of American Airlines, Doug Parker, told CNBC that there were some signs of demand back, but he warned that there were too many unknowns to declare it as a recovery.
“It’s definitely like we’re at the bottom,” said Parker. “Our revenues are down 90% on an annual basis, and they have been down for a few weeks now. The real question is how long you stay at the bottom and when do we start to recover. I don’t think I know it better than anyone. “
JetBlue President Joanna Geraghty echoed Parker during a conference call on May 7.
“We expect to have reached the bottom of demand by mid-April,” she said. “That said, we expect to have a better idea of the third and fourth quarters of 2020 in early summer.”
United President Scott Kirby, who takes office as CEO on May 20, said in an earnings call earlier this month: “New net bookings are now essentially down 100%. So yes, that means it’s at an all-time low, but we don’t yet see any sign of significant recovery and short-term demand. “
Some signs of pent-up demand have emerged, he said, pointing to searches for school breaks for 2021 that were more recent recently than the same point last year. But he warned that the carrier does not expect many of these investigations “to turn into real bookings or travel until the virus is sufficiently contained and the rhythms of daily life become routine again”.
The industry situation is still generally grim. American airports recorded a daily average of 168,748 people passing through their checkpoints in the first 10 days of May. This represents a decrease of almost 93% compared to the period of the previous year. Airlines for America, an industry group that represents most of the major American airlines, told a Senate committee on May 6 that the number of air travelers to the United States had dropped to its lowest level since the 1950s and that domestic flights averaged 17 passengers on board, although schedules were severely cut.
CEOs of Delta, Boeing and others have warned that they expect a recovery in travel demand to take two or three years to return to last year’s levels. The industry is being tested both by concerns over the virus and by the heavy economic toll of businesses and consumers.
– Matt Rosoff of CNBC contributed to this report.
Correction: NBC News reported that the death toll in the United States from the coronavirus had exceeded 80,000 by Monday, May 11. An earlier version of this story distorted the source.