How Bad Might the Economy Get?

We have avoided commenting on the damage the novel coronavirus might do to the U.S. economy because we are in new waters and, the truth is, no one knows.

But economic forecasters at UCLA’s Anderson School of Business are projecting a decline in the second quarter of 2020 by 7.5% from the previous quarter (an annual rate of -30%), and decline by an additional 1.25% in the third quarter (an annual rate of -5%).

This contraction will drive the official unemployment rate to a peak of around 13% in the fourth quarter, and total job loss to approximately 17 million. The economy is forecast to rebound by 1% in the fourth quarter (an annual rate of 4%). The rate of growth is expected to accelerate in early 2021 as the effects of COVID-19 abate; however, recovery to an employment level equivalent to the last months of 2019 will not occur until late 2022.

The St. Louis Federal Reserve Bank projects demand in the food, leisure and hospitality sectors will fall 75%, resulting in “employment losses ranging from 59% (in that sector, which accounts for roughly 8% of total employment and is the hardest-hit sector) to virtually zero in sectors that aren’t affected by social distancing (which account for 40% of total employment). Sectors somewhere in the middle that are moderately affected by social distancing (accounting for 52% of total employment) experience 5% employment losses.”  These losses will hit areas and people already in financial distress even harder.

What might this mean for bev/al sales?  Lower obviously.  How much lower?  No one knows.  We are in uncharted territory.  There obviously will be some substitution – some of the alcohol people would drink while eating out will be drunk at home, instead.  But as far as we know, no one has yet put a number on it.

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