Ali Wolf, Meyers Research chief economist, explains recessions.
This is important. We, as value-creators–as consumer households, or businesses–need to know this as we do what we must do to preserve our “entity” status.
Wolf explains recessions for two reasons. One is that many of us mischaracterize a recession as two consecutive calendar quarters of negative GDP growth. The other is that, by failing to understand the real nature of a recession as a “broad slowdown in economic activity spread across multiple sectors that last more than a few months,” we may do the wrong thing right now as we act to preserve either our business or our household.
Having the correct understanding of the start date of a recession–which Wolf notes can only be a call in hindsight, often after a lag-time from the depths of the doldrums as the inflection shift from positive to negative–and a grasp of the sectors, geographies, and root causes, on one hand, and stimulus and stability impacts on the other, will improve your decision-making earlier in the downturn cycle.
Swift, decisive, sometimes counter-intuitive, sometimes painful action earlier in a crisis–especially one whose magnitude is currently inestimable–can matter a lot now. This is often the case, even as uncertainty, not to mention faint sensations that all will be well once the surging tide of the Covid-19 outbreak spread and toll start to recede, reigns.
Ali Wolf, chief economist for Zonda
When she explains recessions, Wolf looks across a five-recession knowledge base, or more, to detect, decipher, and draw insight for us as to what to expect, based on history, based on repeated patterns, based on learning.
We also know home builders track their own business models, their networks and nodes of data–pace, price, cancellations, new-leads, conversion rates, closings, etc.–and, as many as a half of them are currently seeing relatively benign impacts to their volume projections, expectations, and resource allocation streams.
They’re mindful of the critical importance, first and foremost, of their backlog and securing the operational capacity, financial wherewithal, and mortgage attainability to deliver on homes that buyers have deposited earnest money to own.
What they may not be allowing for, yet, is disruption to liquidity, to cash-flow enough to preserve the entity status of their business.
Forgive us, but we’re skeptical of surveys that cite builders’ general belief that 15% to 20% of their 2020 business is at risk here this year.
Check out here, a dozen reasons we’re particularly skeptical of surveys. Mostly, thanks to our very human biases, they confirm what we want to hear.
Also, check out here, this morning’s release on unemployment claims among the newly jobless. Even as Covid-19’s very worst horrific days may be reaching their highest levels over the days or weeks, eventually beginning an ebb tide of new infections, hospital admissions, and fatalities, the damage to the economy and its threat to businesses are still largely unknown.
What builder surveys confirm–typically, historically, predictably–is that builders, bless their valiant hearts, are unflappable adherents of “greater fool” investment philosophy. This is to their credit, and must to some great extent explain why new home construction has earned its stripes as a bellwether in recessions past. “Greater fool” business leaders expect of themselves that they can make value where others fail to see it–and, often, that’s what they do.
Still, when jobs and earnings losses are piling up faster than any of us can currently keep track of, the fortitude of home builders and their ability to preserve their own businesses look to us as if the stresses and shocks are only just beginning. Builders–despite their intrinsic characteristic that tells them they can “outlie” peers, and succeed where others fail–may have to suspend disbelief in a collapse that can challenge their entity’s capacity to survive … in order to do just that, survive.
