A downturn is likely
My primary Chinese business connections are in Wuhan, ground zero for the recent coronavirus (COVID-19). I have followed this matter closely in the online news since late December as these coronavirus related events would significantly affect Chinese businesses, and therefore my businesses.
My recommendation to everyone is to begin making preparations for a downtown of the U.S. economy starting in 30 to 60 days.While there are hopes this downturn will be short and not severe, there is no certainty about how the coronavirus and its impact on the world and USA economies will occur. There is no need for fear, panic or hoarding, just calm preparation an obvious difficult economy for 2020 and possibly beyond.
Once Wuhan was shut down on Jan. 23, I immediately realized the potential impact to my MiniFlex Microphone manufacturing business, which operates out of the 207 Main St. facility in Greenville we share with MusicLand. Our MiniFlex products are manufactured from components coming from eight different countries located on three different continents. Many of our critical parts come from China, and Wuhan specifically.
Fortunately, I am an old-school business person who keeps a good parts inventory, and MiniFlex is well prepared to weather any such downturn, but most modern manufacturing businesses rely on “just in time” inventory management, so that parts are used for assembly within one to four weeks of arrival, with immediate replacement by a new shipment. Such manufacturing businesses in the USA and all around the world are running low on critical parts, and with delivery from China perhaps one to six months away. “Word on the street” is that all business in China is a mess at best, but with the industrial heartland and its transportation hubs around Wuhan completely shut down.
Transportation for manufactured goods is sporadic, if available at all. Plus, the heavy-handed approach of the Chinese government to impose quarantines has everyone in China “on edge” for possibly government arrest if they are reported as not following health directives. Personal vendettas reminiscent of the “days of Mao” are beginning to be reported. Fear quickly breeds more fear in a self-generating bottomless downward spiral.
This government reach also extends to businesses, which now must receive many new permits to re-start.
As some wise guy recently said, “You cannot build and sell an automobile with just 99 percent of the parts.” The same is correct for most modern manufacturing.Some businesses will locate or themselves manufacture specific critical components to keep operating, but the machine tool capacity of the USA is only a fraction of its former strength, and will take time to expand.
So, manufacturers around the world have already begun layoffs of workers idled from a lack of critical components. This means fewer affluent consumers, and a reduced demand for luxury goods. At the same time, many retailers will see their supply chain for consumers’ goods reduced or eliminated. Shelves on such retailers may begin to appear empty in the next 30 to 60 days.
Every consumer will soon get a clear view of how much of what we use in our daily lives is manufactured in China, or uses Chinese components.
Given how highly leveraged (in debt) are many businesses in the USA and around the world, a decline in their sales will also lead to problems servicing this debt. Bankruptcies, business closures and foreclosures in general will begin to occur and possibly severely depress stock markets. New housing starts and housing sales “could tank.”
I would like to provide a few specific examples of how there is already clear evidence the coronavirus affects the USA and world economies, and finish with a summary of how I perceive such an economic downturn will affect the local Plumas economy.
Northwest USA farmers have presently lost most, if not all, access to their China markets, and sales to China for USA agriculture products has already plummeted.
Since factories in China are out of production, and their transportation network is in disarray, goods are not moving to Chinese ports and being shipped around the world. With no ships arriving in world ports with Chinese goods, there is a shortage of containers and shipping available to USA farmers to ship back to China. USA crops are starting be left unharvested, or, in some instances, containers of perishable goods are left to rot on Chinese docks as there is presently no labor to unload or distribute the contents within China.
This problem could expand into the summer growing season if China has a slow re-start to its economy after the coronavirus hopefully begins to abate.
There are some positive signs of such abatement from recent reports, but given how embarrassed the Chinese government is by their early mis-management of the coronavirus, and how tightly they control information, these reports are highly suspect. If Chinese authorities are somehow further embarrassed by being shown as incompetent, this could lead to further unrest in China, and further distrust from non-China businesses.
A specific example of how this disruption could affect American consumers is emerging for the USA cherry crop … one of the earliest maturing West Coast perishable fruits.
Harvest of cherries begins in approximately 90 days (late May in California), and extends through August in Washington, the major cherry producing state. Current practices for packing, distribution and retail display of cherries are built around the reclosable 2-1/2 pound perforated plastic bag.These bags are manufactured in China, and in a normal business year, containers of such bags would soon be arriving in West Coast ports. But delivery of such bags to cherry processors is “nowhere in sight.”
So, these processors will need to quickly find alternatives and try to integrate such new packaging into their processes.Such a rapid transition will create inefficiencies of operation which will lead to an increase in costs to harvest and ship, meaning that consumer prices will go up, which further reduces demand for a “luxury food item” such as cherries.
The downward spiral of an economic downturn can become a “self generating vortex,” with each consequence creating even greater negative economic consequences in inter-related industries and markets.
My anticipation for how this economic downturn will affect the local Plumas economy is more optimistic than for urban areas of California and beyond.
Plumas county operates via a “3d world colonial economic model.” This means we export our raw materials (timber and water), while we import manufactured and agricultural products.Plus like many colonial economies, there is a high percentage of retirees who recently moved to Plumas for the slower paced and less costly lifestyle of urban business centers.
It is likely that demand for lumber will decrease sharply as new construction slows, and this could impact production and jobs at SPI in Quincy and Collins Pine in Chester. Unless budgets are cut due to lower tax revenues, local Federal and State of California jobs are probably secure. And retirement incomes tend to be the most stable income source of all. Seasonal tourism is likely to increase, given how Plumas county is a “drive to destination,” not requiring airline travel.Plus camping is a much lower overall cost alternative to hotels and restaurants at inflated urban prices.
I am reminded from a line in a classic blues song stating, “I been down so long, it looks like ‘up’ to me.” The local Plumas economy, when compared to urban areas, is already so close to the bottom that a little further down will not be that big of a change.
My recommendation to local Plumas residents is to:
… Put off large “luxury purchases”;
… Try to create some cash savings, however small;
… Stock up on a few essential items for being able to function if the coronavirus begins to “community spread’ in Plumas … face masks, disposable gloves, cleaning supplies, disinfectants, etc. But don’t hoard these items either. A 30 to 60 day supply should be sufficient. Hoarding could only make distribution and shortages more of a problem;
… Get involved in the local community to build and strengthen personal networks. Churches, service organizations and boards of directors always need “fresh blood,” and building such community connections through volunteer work is a powerful tool to survive a bad economy in a small rural economy such as Plumas County.
Most of all, DO NOT PANIC. A frightened and panicked public is perhaps the most dangerous possible consequence of the coronavirus. The Centers for Disease Control (CDC-USA) reports that current deaths in the USA for this current flu season are approximately 16,000 persons. Deaths worldwide from the coronavirus currently rest well under 3,00 total. We need to prepare. We need to begin taking health precautions. We need to be especially careful when we travel outside of Plumas County. There is no need to be afraid, or to worry.