COMPARING THE IMPACT: How Does COVID-19 Measure Up to Past Historical Events?

by Dexter Van Dango Monitor 100 2020
The effects of COVID-19 continue to unfold as virus cases spike throughout the U.S. How does the current economic climate compare with the crises of the past? Dexter Van Dango compares our current plight to the influenza pandemic of 1918, the Great Depression and the Great Recession.

Dexter Van Dango,
Senior Executive,
Equipment Leasing & Financing Industry

John F. Kennedy once said, “Change is the law of life. And those who look only to the past or present are certain to miss the future.” As the global COVID-19 pandemic impacts the economic recovery of the entire world, we need to look to the past to understand the present and foresee the future.

In planning for this issue of Monitor, the guest editors were asked how we could commemorate the pandemic in a way that wouldn’t be stale or take away from the 2019 Monitor 100 data that this issue presents. They suggested an article comparing the pandemic with the Great Depression, the Great Recession or the influenza pandemic of 1918. The result is my attempt to compare the past, the present and the future after the effect of the novel coronavirus, COVID-19.

It is difficult to know the impact COVID-19 will have on the leasing and finance industry. One indicator is the ELFA Monthly Leasing and Finance Index, which showed new business volume for May was down 26% year over year and down 18% month to month. I suspect the June MLFI report will show continued decline as the country struggles to reopen following a nearly complete shutdown. The question remains, how long will it take to recover?

It seems that everyone has an opinion on how disastrous a toll the virus will exude.

The Financial Times quoted OECD chief economist Laurence Boone: “Most people see a V-shaped recovery, but we think it’s going to stop half way…By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.” That’s more than a year from now, and a rather sobering projection.

Others caution against such dire warnings. Despite the largest series of job losses in history, the most rapid decline in commerce and a sudden drop in equity markets, the U.S. is experiencing what appears to be a V-shaped turnaround that defies sensibility. Following dramatic declines in March and April, spending in May increased while jobs continued to decline but at a much lower rate. The Nasdaq is setting new record highs almost daily. The only explanation for this historic recovery is the prompt and unprecedented financial aid provided by the Treasury Department and the Federal Reserve. The Paycheck Protection Program, the Main Street Lending program and $1,200 stimulus payments along with $500 payments for children contributed to the quick recovery.

At this writing, another stimulus plan is being considered. A group of Harvard Business Review economists believe these actions are what will prevent 2020 from looking like 1929, when the banking system crashed in what would become the Great Depression.

However, others disagree. According to Bloomberg, the International Monetary Fund (IMF) cut its forecasts for the global economy, expecting a reduction of 4.9% as well as an 8% reduction in U.S. GDP in a revised report released in late June. “We are definitely not out of the woods,” Gita Gopinath, IMF chief economist, said at a press conference. “This is a crisis like no other and will have a recovery like no other.”

Billionaire philanthropist and co-chief investment officer of hedge fund Bridgewater Associates Ray Dalio takes an even less optimistic view of the current economic situation. “We’re not going to go back to normal,” Dalio stated in an interview with CNBC. He drew a comparison of today’s environment to the Great Depression, which lasted from 1929 well into the 1930s and is remembered as the worst economic crisis in American history. Dalio predicted that the impact of the economic downturn will require a recovery period lasting up to five years, comparable with that of the Great Depression. I certainly hope that Dalio is wrong in his glum prediction.

1918 Influenza Pandemic

One hundred and one years before COVID-19, the world experienced the influenza pandemic of 1918. Times were different. Less population and less widespread travel subsequently meant less long-distance transmission of the disease. Nevertheless, the pandemic claimed the lives of 675,000 Americans and 40 million globally between early spring of 1918 and late spring of 1919.

In a Federal Reserve report, Thomas A. Garrett noted that one ironic economic impact of the 1918 pandemic was an increase in wages for laborers. With so many people infected and dying, it became a supply and demand issue. Not unlike today, the death toll was higher among nonwhite Americans due to their population concentration in urban areas. Garrett’s report concluded that “most of the evidence indicates that the economic effects of the 1918 influenza pandemic were short-term. Many businesses, especially those in the service and entertainment industries, suffered double-digit losses in revenue. Other businesses that specialized in health care products experienced an increase in revenues.”

The influenza pandemic of 1918 took an economic toll on the country, yet the economy rebounded rapidly as the pandemic was vanquished. During separate speeches, Chicago Fed President Charles Evans and St. Louis Fed President James Bullard each suggested that the U.S. recovery from COVID-19 will take until late 2022, a time period similar in length to the one required following the 1918 pandemic. Consider how that would affect your business over the next two years. Staggering!

If we can follow the directions of doctors Anthony Fauci and Scott Gottlieb and the guidelines of the Centers for Disease Control and Prevention by practicing social distancing and wearing masks, we can flatten the curve of disease spread, deflate the damage of the virus and shorten the adverse effect it is having on the economy.

The Great Recession

The U.S. economy is now in a recession, technically, after a string of 128 months of growth ended in February. This period of economic growth was the longest in U.S. history, exceeding the previous 10-year record period between 1991 and 2001. The economic expansion followed the Great Recession of 2007 to 2009, which was a global financial crisis that cost the U.S. around $4.6 trillion in terms of lost growth in GDP, an approximate 15% decrease. At this stage, the total cost of COVID-19 is unknown, but some prognosticators believe the final tally will significantly exceed the cost of the Great Recession. The Congressional Budget Office estimated a $3.9 trillion reduction in projected GDP for the 2020 to 2021 period attributable to COVID-19, including a $2.7 trillion downgrade to the office’s projection of consumer spending. The New York Times reports that overall, the IMF “expects that the cumulative loss of total output for the global economy this year and next year will top $12 trillion.”

COVID-19 has affected employment in a devastating way. More than 47 million U.S. residents filed claims for jobless benefits between March and June according to the U.S. Department of Labor. To compare these numbers with the Great Recession, in 2008, at the peak of the financial crisis, 2.6 million Americans filed for unemployment, making it the year with the largest loss of jobs since the end of World War II in 1945.

In a recent report written for clients, Goldman Sachs economists estimated the ongoing impact of COVID-19 will cause a peak in U.S. unemployment at 25%, equaling a level not seen since the Great Depression. According to the May ELFA MLFI report, our industry employment rate sank to a lowest point of -4.8% in April but recovered to -2.2% in May. However, a large percentage of the people working in our industry are employed by banks. At the outset of the shelter-in-place, work from home transition in mid-March, the big banks publicly stated that they would not furlough employees. Those promises didn’t come with an unlimited timeframe. If business doesn’t show material growth, there will certainly be meaningful job loss in the leasing and finance industry later this year.

The Great Depression

The anticipated level of bankruptcies associated with the coronavirus will likely exceed those filed during the Great Depression. Bankruptcy filings were rare in the 1930s because laws favored lenders and the failure of a bankruptcy branded the filer more negatively than it does today. Total liquidation of assets was the more common approach in that era. Comparatively, the pandemic will create a surge in bankruptcies, particularly in dining and food services, energy, entertainment, retail and travel-related businesses. Business bankruptcies this year have already exceeded the level accredited to the Great Recession of 2008, according to

Finally, I once again reiterate that we won’t know the economic, employment, psychological and business transformational effects COVID-19 will have on the U.S. economy, its people and our future way of life. The level of uncertainty remains high. We won’t know until it is over or until a vaccine or valid therapeutic treatment is identified.

But there are a few things we do know.

We know that as an industry we have stepped up like never before. The suddenness of the economic decline created an immediate hit to the revenues and cash-flow of our customers. We reacted with deferrals, forbearance agreements, restructures and genuine compassion and empathy. In many cases, we took a financial charge so our customers wouldn’t have to. Collectively, we can be proud of how we responded to the need.

We know we can work from home. We know that our advances in digital transformation efforts can be accelerated when critical needs push us beyond our comfort zones. We know that our people will perform remotely — sometimes even better than when “supervised” on-site. We know that in the future, we probably won’t need as much real estate space as we once presumed. We know that we are an industry that always adapts. . . always have, always will. And we know that the months ahead will bring more learning, more collaboration, more adjustments and likely, more chaos. Nonetheless, we will thrive and survive. Stay safe. •

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