A Post-COVID World: What “New Normal” Holds in Store

Michal Katz
Michal Katz Head of Banking Division
May 26, 2020

Since SARS-CoV-2 emerged late last year, it has left chaos in its wake. Few events in the past century have so disrupted human society. Fewer still have done so as quickly. Every aspect of our lives has been affected. Over the past 6 months, entire nations have been locked down, industries mothballed and global supply chains have been disrupted as we have struggled to keep up.  Many questions surround the virus and its impact remain unanswered, but one thing is clear - the “new normal” will look quite different in every aspect of our lives: society, culture, economy and government. 

Home as the New Hub
Socially and culturally, it is clear our horizons are narrowing, at least in the near and medium terms. Due to the lack of collective immunity and its rapid transmission, combatting the virus requires us to avoid unnecessary physical contact and densely populated locations. These behavioral adjustments directly affect how we live, work and consume. 

Social interactions on the individual level are sure to become less intimate, especially beyond our immediate circles. In the late 19th century, it was common for several people to drink from a common vessel, but this promoted the spread of tuberculosis. Following outbreaks in the 1890s, individual glasses and bottles became the norm. Shaking hands or greetings with an embrace may go the way of the shared canteen. Attending large gatherings or events that require close physical proximity will become rarer. Cocktails at the local haunt, crowded concert halls and air travel are already replaced with Zoom happy hours, Instagram Live performances, and staycations are likely to be the norm until a vaccine becomes available.

Larger social shifts are at hand as well. A dramatically changed post-COVID city life, concerns about personal health, and the fact that we may not have to be tied to a physical location for work or school could undermine the allure of cities. Recent Census Bureau data tell us that the urbanization trend has already been slowing due to concerns around affordability and space. A recent Harris Poll found that nearly 4 in 10 urban dwellers said COVID-19 had caused them to consider leaving for a less crowded place. Younger respondents between 18 and 34 – the core demographic driving the move to cities in the past two decades – were more likely than other groups to say they were considering a move. There is also evidence changes in the way we work could affect urbanization. Telehealth appointments, online classes, and most importantly, remote working have gone mainstream during the extended stay at home orders. As residents leave for the suburbs and exurbs, commercial demand shrinks and tourists keep their distance, the core of nations’ largest cities will suffer. Broadly, COVID-19 could hollow out once lively urban centers. 

An Uneven Landscape for Recovery
COVID has also delivered a body blow to the economy, leaving no sector untouched. Many businesses were idled as part of the effort to stop the virus’ spread, resulting in massive layoffs and furloughs. In the US, the resulting jobs numbers have been shocking. According to the Federal Reserve, one in five American workers lost their jobs in March, including almost 40% of those in lower-income households. Federal Reserve Chairman Powell has said the unemployment rate could well reach 25%. With figures like that, we will see a sharp drop in consumer spending and significant belt tightening by Americans.

How is this rippling out through the economy? Some sectors are better positioned to adapt to these circumstances than others. Industries dependent on a quick recovery and the return of consumer spending will suffer. Hospitality and travel will be hit hard. The International Air Transport Association (IATA) has said airlines could suffer a loss of $113 billion as a result of COVID-19 shutdowns and traveler concerns about safety. The same is true for cruise lines, which were flourishing before the pandemic with record bookings and high prices. We are looking at recovery times measured in years. The food and beverage industry, which accounted for 60% of the jobs lost in March alone, and the hotel sector, which has shed nearly 4 million jobs due to COVID-19 are also likely to limp along through the end of the year despite partial reopenings. 

The picture is not entirely bleak, however. There are also beneficiaries of this moment. With Americans staying at home, some of the sectors weathering the storm best are those in grocery, food and beverage production, and consumer staples. Since March 12, Kroger’s stock is up 11%, Kraft Heinz shares have jumped 49%, and Proctor & Gamble’s is trading up nearly 11%. As long as we are prevented from returning to a semblance of our lives pre-virus, you can expect to see companies that provide consumer staples remain healthy.

Also faring well are companies that have helped us adapt to these new circumstances. Stuck in the house and fearful of unnecessary interactions, consumers have further embraced ecommerce and contactless payment. Retailers with a strong online presence are in the catbird seat. In the first quarter, Walmart and Target saw their online sales surge by 74% and 141%, respectively.  Amazon’s revenues rose by 26% in Q1, driving its stock price up by nearly half (45%) since March 12. And it’s not just groceries and home goods. Data from payment systems company ACI Worldwide shows sales across several online retail categories jumped in March – some as much as 74% year over year. At the same time use of contactless payment, which includes tap-to-go credit cards and mobile wallets, is on the rise. According to a survey from MasterCard, over half of Americans are now using a payment method with these capabilities. In the same survey, a third of respondents noted that safety and convenience concerns amid the coronavirus caused them to switch to a card that offers contactless capability.

Systemic Change Goes Viral
On the political front, big government is on the rise, globalization is retreating and labor unions are seeing an opening. 

The impact of COVID-19 on financial systems and the capital markets brought decisive actions by governments and central banking organizations. Since March, Congress has passed more than $3 trillion in spending in 4 coronavirus relief bills aimed at supplementing state unemployment insurance programs and keeping businesses of all sizes afloat. Those moves expand the role of the federal government beyond actions taken in past economic crisis. And now the House Democrats have prepared a fifth which aims to send money to state and local governments to prevent layoffs and top up pension funds. Perhaps during COVID, we are all Keynesians. What is not in question is that the coronavirus has demanded a huge governmental response and the effects will linger for a long time to come. 

Internationally, globalization is under threat like never before. While populism and protectionism have gained ground in the developed world over the past decade, exemplified by the election of Donald Trump, Brexit and rising anti-immigrant rhetoric, this pandemic has exacerbated the rhetoric. 

Even before COVID-19 emerged on the stage, the US-China trade war had rankled the world’s most important trading relationship. But now, as tensions run high around China’s transparency and US reliance on China for personal protective equipment and antibiotics raising eyebrows and tempers, the possibility of a larger rupture in the global trading system is greater than ever. Senator Josh Hawley of Missouri has even suggested the US withdrawing from the World Trade Organization. And it isn’t just the flow of goods that is under threat, but also the flow of people. According to a recent New York Times report, 93% of the global population lived in countries that put in place COVID-19 travel restrictions. In the world’s largest supranational entity, the European Union, the response was anything but unified as member countries stopped seamless travel within the Schengen Zone. The virus may not recognize borders, but it has caused nations around the world to close theirs. 

But as we close out May, one group may be benefiting from the politics of the moment: organized labor. While union membership in US has been on the decline for decades, COVID-19 may provide a glimmer of hope for a couple of reasons. First, the pandemic has put the difference between white collar workers who can work from home and essential and gig workers who must risk their health to earn a paycheck. To highlight this divide, workers have staged walkouts or sickouts at Amazon warehouses, fast food chains and grocery stores in recent weeks.  Additionally, layoffs and furloughs have caused many Americans to lose health care benefits during a global health crisis, another issue likely to galvanize worker frustrations. Finally, research suggests there was rapid growth in union membership following the Great Depression. With unemployment rates nearing those of the Depression era, and renewed concerns about personal safety, coronavirus may be the spark organized labor needed to stage a comeback. 

It would be cliché to note the unprecedented ripple effects COVID-19 will have going forward if it were not simply the truth. Social rituals will be suspended, economic patterns will be altered and political systems reordered. But amid all of this, if we use history and data as our guide, it will shed some light on our path forward to allow us to find our footing in this new normal. 

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