Coronavirus Impact on Business and Engineering

The coronavirus impact on business stretches to every country. Every business feels the squeeze. Some much greater than others.

Even in the engineering world where I work the impact ripples through.  Keep in mind, my work falls under an “essential service”. Thus, I don’t need to work from home.

I provide engineering services to both power and water projects in California. We all still need power and water to survive while quarantined.

But, some of my clients and subcontractors for projects, I can’t reach. These are projects connected to the power and water fields too.

My calls and emails go unanswered. While many projects I manage have slowed to a crawl.

As a result, I’m left in limbo. What do I do with the slowdown in business?

Clearly, all cities, counties, and businesses are experiencing uncertainty. I see this fueled from:

  • Fear: people scared about how they should act. They don’t want to jeopardize themselves or their loved ones.
  • Uncertainty: a high level of uncertainty on everything. Right now, a clear solution doesn’t exist from anyone on how to tackle the coronavirus.
  • Project funding: uncertainty with funding for engineering projects. Does a water facility need upgrading in all this uncertainty? So, higher-ups are scrambling to determine if they should pause a project. Then, reallocate the funds to address the coronavirus outbreak instead.
  • Social distancing: how to approach field and construction work. At most project sites, it’s difficult to maintain 6-feet of social distancing. Plus, due to the elements of working outdoors, people will touch their faces.

That said, today’s market greatly differs from anything we’ve ever seen. Most recently, we had the 2008 Great Recession.

2020 Market Versus 2008 Great Recession

In 2008, the global market came very near to a complete collapse. A deregulated financial market created the following domino effect:

  • Banks could sell mortgage derivatives, and not bear any default risk.
  • Banks demanded more mortgages.
  • The creation of interest-only loans for subprime borrowers to increase mortgages. So, lending became very loose.

In the aftermath, the government saved the economy with its intervention.  Without this intervention, we could have gone through another great depression. U.S. workers would have experienced much greater financial losses.

At that time, I saw many businesses close their doors. Credit had dried up after the collapse like nothing I’d ever seen.

As a response, banks shortened their lending hand. Unfortunately, most businesses rely on credit to operate. Thus, the lack of credit became a dagger to the heart of businesses.

To highlight, the number of businesses created every year in the decade before the 2008 market crash averaged to 670,000. In 2010, this figure dropped to 560,000. This according to the Bureau of Labor Statistics.

number of businesses started annually in America sourced from US BLS

Also, between December of 2008 and December of 2010, roughly 170,000 small businesses closed. This below graph from the Bureau of Labor Statistics shows the spike in business closures.

businesses started and closed in America annually sourced from US BLS

This market turmoil then led to millions of lost jobs. From December of 2007 through December of 2009, 8.7 million jobs were lost. Many jobs tied to external financing went under.

I saw highly coveted jobs in Silicon Valley just go up in smoke. These were startups and companies that were supposedly insulated from market dips.

I received calls from countless colleagues and friends who had lost their jobs. It all happened very fast too. It unfolded as such:

  1. Lending tightened
  2. Housing construction halted. All types of engineers could no longer design for increased demand. Think of engineers designing for future increased capacity at a water treatment plant.
  3. New companies couldn’t secure new funding. Also, existing companies couldn’t extend their funding.

A lot of the time, engineers design for the future. When you design for the future, you leverage today’s dollars. But, when you can no longer leverage today’s dollars, work freezes and then soon drys up.

Coronavirus Impact on Small Businesses Today

Now today, we have a global health pandemic. The source doesn’t come from the financial sector and subprime mortgages. We didn’t volunteer and create this crisis this time.

Rather, an unknown virus that kills people has engulfed us all. On top of that, this virus exposed major inefficiencies in the  U.S.’ supply chain.

America heavily depends on China for critical survival supplies. Another country going through its own turmoil with this virus.

Also, U.S. hospitals today don’t have the preparation for mass scale infections. A case study for a virus pandemic at this scale never hit the boardroom. It only exists in Hollywood scripts.

So now, to curb this virus, the U.S. government mandated shelter in place. As a result, most businesses have shut their doors. How long can this shut down continue for though?

In America, small businesses make the backbone of the economy. Small businesses accounted for 64% of the net new jobs between 1993 and 2011. This according to the US Small Business Administration.

To add color to the picture, this is 11.8 million of the 18.5 million net new jobs created.

The Importance of Small Business in the American Economy

Small business accounts for 44% of the total private payroll in America. Without them, America’s heart would stop beating.

Not to mention, large billion-dollar businesses are highly dependent on small businesses. These fortune 100 companies serve small businesses.

For example, a large part of ad spending on Google and Facebook comes from small businesses. As another example, before this pandemic, Yelp had a value of over $3.5 billion.

Without small businesses, Yelp would die overnight. Taking one step further, small businesses create the future giant companies of tomorrow.

Look at this below list of small business founders

  • Henry Ford (Ford)
  • Bill Gates (Microsoft)
  • Sam Walton (Walmart)
  • Steve Jobs (Apple)
  • Larry Page and Sergey Brin (Google)
  • Elon Musk (Space X and Tesla)

So many more exist. These founders all started as small businesses. Now today, they shape how business is done. While also employing millions of people.

Thus, we need to protect small businesses and allow them to flourish. Not to cut their life support.

For this reason, a pandemic like this scares me. We lose the most control of protecting small businesses while jeopardizing our future.

The Shutdown That Could Drown Small Businesses

I foresee this coronavirus shutdown lasting at least 2 months. But this can stretch up to 18 months as proclaimed by the government.

Hard to imagine. Now consider 99.7% of U.S. businesses have fewer than 500 workers according to the Census Bureau.

Also, most small businesses don’t have a vault of cash saved. Businesses like Google and Apple are outliers with billions of dollars in the bank.

Most small businesses rely on continuous work. Their cashflow goes to payroll and other overhead costs every month.

Think of a business like a shark. A shark needs to constantly move or it’ll die. The same goes for businesses.

This further highlights the importance of properly addressing this pandemic. So, how thin can businesses stretch themselves before they begin to crumble?

I can’t see many businesses going 2 months without cash flow. The week after week costs will mount. Businesses will go deeper into a hole of debt.

Goldman Sach’s March 19th, 2020 Unemployment Claims Projection

Taking one step further, let’s look at the below graph. This graph shows the number of unemployment claims since 1980. Then on the rightmost side, it shows Goldman Sachs’ March 19th, 2020 projection.

Goldman estimates 2.25 million new unemployment claims because of the coronavirus. This makes the unemployment of the 2008 Great Recession seem trivial.

But, remember, this graph is not the total number of people on unemployment. It’s the number of new people who file for unemployment.

In the 2008 Great Recession, everything didn’t happen all at once. Layoffs came over time. Today, the government’s sudden economic freeze resulted in an immediate spike in claims.

job loss claims in America sourced from US BLS

Coronavirus Impact on Engineering Work

In engineering, we don’t directly go fix a fallen power pole to bring back power to a community.

Rather, we design and research. I’ll list some typical projects I would work on in the power and water field:

  • Upgrade a water or wastewater treatment plant for increased capacity.
  • Upgrade filtration equipment at a water treatment plant.
  • Retrofit and upsize a substation to meet increased power demand.
  • Upgrade old ready to fail electrical equipment. Equipment ranging from 120 volts to 230,000 volts.
  • Improve protection and reliability at a substation through relay upgrades to limit downtime.

Now, what if the coronavirus continues to wreak terror for months to come? I see many engineering positions lost.

With a standstill in the economy, all the projects I listed above could lose funding. So, unless equipment fails, engineers won’t need to do any design work.

Instead, cities and counties will use their funds to tackle the coronavirus. People need supplies, protection, and so much more. So, we would rely on the existing working infrastructure to get us by.

Also, private businesses would halt their engineering projects too. Without cash flow, private businesses would only preserve cash to stay afloat.

They’d only spend money on critical engineering projects. In times of uncertainty, priorities shift.

As an analogy, think of your own financial situation. If you lose your job, will you try to buy a bigger home and a nicer car? I would think not.

For this reason, like the 2008 recession, engineers won’t be immune to a frozen economy.

Coronavirus Impact on Business Will Drive the World in a New Direction

The outcome of this pandemic depends on how well governments react. If we react too slowly and with not enough cash infusion into the economy, we may go into a great depression.

The coronavirus impact on business will wreak havoc on our economy. The economy can come to a screeching halt.

As a result, unemployment will skyrocket and people will lose everything. I’m not even discussing the great loss in life from the virus and financial strains.

But, as an optimist, I’ll assume a positive outcome. On the other side of this pandemic, I see significant positive changes. The same high-level changes we saw after 9/11. These changes include:

  • Bring more manufacturing back to America. Especially for critical supplies in the medical field.
  • Improve medical screening for travel and immigration.
  • New protocols for improved response to virus outbreaks. In today’s global world, the reality of virus outbreaks will become more common.
  • Properly funding medical research for such things as vaccines to improve preparedness.

I hope this coronavirus outbreak will strengthen us moving into the future. As a result, we become better prepared to handle adversity at scale.

That said, the future does look rocky as we figure out how to combat this virus. We certainly have a long road ahead of us.

But, looking at China and South Korea, the future also looks promising. To have the same success as these countries, we need a minimum of a 2-month lockdown.

At this stage, we need to do whatever it takes to get back on our feet. Then, we can apply the lessons learned.

I just wonder how small businesses will do in this volatile time. I hope most can weather the storm.

How do you foresee the coronavirus impact on business? How do you think global governments should handle this virus outbreak? What future changes do you think nations should use to fight virus outbreaks?

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