Coronavirus resurgence clouds outlook for US wine business recovery
The trajectory of the U.S. economy continues to be murky amid further and hinted public-health actions that close business sectors in attempts to control the coronavirus pandemic, but economists are expecting the recovery to stretch over the next few years.
“The recession will be quick, but the recovery will be longer,” said Sarah House, a senior economist with Wells Fargo Bank, speaking at the Business Journal’s 20th annual Wine Industry Conference on July 29. “Probably, it will feel like for most people like we’re in recession for a while.”
She and other economists foresee that feeling of recovery coming in 2022, with return to the baseline for the U.S. economy potentially stretching into 2024, based on historic growth rates for the nation’s gross domestic product.
That metric for the U.S. economy fell 5.0% in the first quarter and 32.9% in the second quarter, according to the Bureau of Economic Analysis. It was the biggest quarterly GDP hit since 1947 and the steepest since 1958, according to the Associated Press.
But the pain of the economic contraction from virus-related closures of businesses had cut much deeper, pulled back up in the closing weeks of June with reopenings, Sonoma State University economist Robert Eyler said during a Marin Economic Forum webinar Aug. 1. The current projection from the Federal Reserve is for 17% GDP growth in the current July–September quarter.
“The third-quarter results are going to be a big thing in terms of seeing how quickly we're going to recover from this, because we have relatively small growth (so far) in the third quarter,” Eyler said. “It's just we're still in that deep hole. And it might take another 12 months or 18 months to slowly dig our way out.”
But while the services sector took a 15.6% hit during the pandemic, durable and nondurable goods had a “V” shaped recovery, according to House. Particularly, wine sales enjoyed a 14% boost, seen in “pantry stuffing” purchases of beverage alcohol from retailers, as consumers were ordered to stay home and restaurants to close indoor dining.
“We’ve seen personal savings rate jump in past few months as consumers have been forced into thrift, because they couldn’t go out even if wanted to,” House said.
The job cuts have hit sectors with proportionately higher numbers of lower-income jobs, different from the Great Recession of 2007–2009.
“Households with higher incomes had higher savings, so they probably have more firepower,” House said, referring to disposable income. That bodes better for consumption of higher-end wines, she said.
What continues to fog the looking glasses of economic forecasters is the same reason why the U.S. economy took such a big hit in the first half of the year, the ongoing outbreak of the COVID-19 virus.
“And we're still in the sort of disease economy, in the sense that policy is very much a function of where politicians see the cases evolving,” Eyler said. “And if they don't see the cases evolving down, there's this threat that we will have a second shutdown, a second modified shutdown, something that is not continuously moving toward full reopening.”
One warning indicator economists are tracking are the number of workers continuing to receive unemployment insurance over time, Eyler said. For the U.S. and California, that roll did peak just after the lockdowns in late March. But the number getting those benefits in the U.S. started to dwindle in the weeks afterward, as some states started to reopen business sectors significantly, then coming back up with rollbacks of reopenings. But in California, the number getting that aid has settled into a steady range of around 3 million for 10 weeks.
“We’re not recovering at the same pace in the state of California,” Eyler said.
The negative trajectory of job prospects in California compared with the rest of the nation could negatively impact the residential and business property markets in the state, he said.
Jeff Quackenbush (email@example.com, 707-521-4256) covers wine, construction and real estate.