I live in Southern California where the state has been one of the slower states to re-open the economy albeit the pace of re-opening appears to be accelerating. California is the fifth largest economy in the world and a major driver of the economy of the United States. Every state is going at a slightly different pace but if the re-opening is successful in California it is a good sign for the country in general.
To get a pulse for how things were going on the re-opening front I spent this weekend taking a drive and visiting several different locations. I wanted to go beyond what the media was telling me and get my own view on whether I think the economy will begin to meaningfully recover this year before a vaccine is approved. I do not think the vaccine should be the holy grail of freedom – see here – but that is only my opinion and I wanted to see if others were willing to go out and live their lives now that the state was allowing more activities. It is one thing to let the dog of the leash but the dog still has to be willing to be on its own.
What I saw was encouraging. Here is what I saw this weekend and my thoughts:
Home Depot is Killing It – I probably should have bought more of the stock.
My first stop this week was at my local Home Depot. My son and I are doing a significant facelift to our outside landscaping by planting all kinds of new plants in our front yard. So I actually took several trips to Home Depot this week and here is what I observed:
- Lines, lines, lines – Home Depot is funneling customers through its doors and requesting that masks be worn by everyone. The line of people from this funneling was at least a few hundred feet when we got there and it was even longer after we left. People were out in force at Home Depot.
- The consumer still looks ready to spend – You would have thought people would be pretty conservative with their spending right now but I saw grocery carts full of stuff as people checked out their purchases. People were not buying that one screw for $0.39 but it looked like some major home improvement projects were taking place in my community from the looks of what was being bought. People were spending their money.
- People are following reasonable rules – Everyone was acting orderly and I would say at least 80% of the customers were wearing masks. Home Depot was not asking people to do anything crazy and their line moved pretty quickly so everyone seemed to be accepting of the new rules. That is going to be important so we strike a good balance between the economy and health and the government leaves us alone and allows us to do more.
Taco Bell – My Zero Touch Experience was Easy enough but it must be Costing More
On my way home I decided to get one of my favorite drinks, a diet Mountain Dew, from Taco Bell just to see how the drive through service was being handled. Here’s what I noticed:
- Zero touch – businesses adapt. Boy, they did a great job getting me in and out of the line without any direct touch points. I did not directly touch any employee, the credit card machine, or anything besides the drink cup that had my drink in it.
- A lot of employees were needed to make this a touchless experience – businesses may have to adapt at a higher cost. There were three employees making this happen and each one was wearing a mask and gloves. I usually never see more than one or two employees helping me at the drive-thru window but this time I had three people helping me with my no touch experience. It was fast and efficient for me but I wonder how much costs will be driven up by these new requirements being put on businesses. These costs will either need to be pushed on to the consumer or eaten by the businesses. At some point they will be priced in to what we pay for things but probably not until demand returns.
The Gas Station – Gas is Cheap but there is a Big Human Element to this Shutdown
To my surprise my gas tank had to be refilled after several months of inactivity so I stopped at my local Circle K to get some gas. There were actually multiple people getting gas which was another sign that people were actually beginning to do things. Here is what I noticed:
- Cheap Gas Prices – I know that gas prices will not always stay so low but they will likely be down for the remainder of the year and this in and of itself acts like a stimulus to consumer spending as people have to pay less at the gas pump so they can buy more of other things. It usually takes me $60 to fill up my gas tank but I was able to get it below $40 this time.
- Real people are getting impacted by this situation – We have all had our experience of someone asking for some money because there car ran out of gas down the street. Usually the person is either homeless or has some kind of addiction and we know that $1 we give them is not going to gas. I had a similar, but very different experience this time. A guy, near my age, very uncomfortable said his credit card had been declined and he was almost out of gas. His car was at the pump and he was not looking for me to directly give him the cash. I went in the store and actually put a few dollars on his pump to help him out. He had a normal car, he was dressed fine, and you could tell he was an average person having a challenging time. I did not ask any questions but I am sure he was someone that had been impacted by this whole economic shutdown that did not have the wherewithal to have any money saved up for the unexpected. This little run-in just reminded me that a lot of people are having a tough time with things.
The Golf Course – Busier than ever but some people want to keep things shut down
The next day I took my son to play some golf at the local golf course that had recently re-opened. My son is a pretty good junior golfer so this was a nice thing that we wanted to do as soon as we could. Here is what we both noticed during our trip to the golf course:
- There is a lot of pent-up demand to do something. The driving range and the golf course were packed. The course implemented demand pricing (meaning they charged more than normal) and it was booked from morning to evening. The driving range had to have every other practice location closed to enforce social distancing but ever available stall was filled and people were waiting at almost every spot to get their practice in. Walk-ins, which means you could basically show up and play, were being told there was no availability for them. To me, this was a flashing green light that people will be getting out and traveling again as soon as possible. Go buy those airlines and travel stocks while they are cheap.
- There are still people that will try to keep the economy from opening. Everyone on the course was having fun and adapting to the changes but people were generally taking off their mask as soon as they got on the course. Technically, each golfer was supposed to play with their mask on and also not go onto the tee box until the other golfer had finished hitting and was in their cart or off the tee box. No one really was following these rules but people were keeping their distance. However, that did not stop some people on the roads between golf holes from actually taking pictures of violators. My soon and I actually saw a person stop his car, roll down the window, take a picture of us (we were without masks) and drive away. When I asked the person at the pro shop about this he said people were sending in these pictures to city authorities trying to get the golf course shut down again. This drove home to me that there are plenty of people that still want the re-opening to stop or slow down. This could be because they prioritize the health aspect of this challenge or other reasons but bottom line is that there are still people that want things to stay closed for now and they will do things to try to get their way.
Bottom line – Consumer demand will be there this summer if states open things up and that could lead to improving economic data that drives the markets higher for the next few months.
Consumer demand is critical to getting the economy back up and running and if my experience this past week is indicative of how things will go then we will have plenty of consumer demand this summer if activities and places open up. People are not waiting for a vaccine to get back to doing things they want and they are willing to modify their behavior to help move things forward. I was encouraged for our economy based on what I saw this weekend and the next few weeks will see if this demand sticks. It is also unclear if we will see a return of higher infection rates as things open up but at this point that result seems far from certain and I believe people will not want to close down again unless hospitalization or death rates skyrocket after re-opening.