How A Virus Upended The World Economy

The virulent invader, which swept through Asia and Europe, is leading many U.S. businesses to hoard cash, pare spending and rethink how they operate without knowing how long the troubles will last. Some that lost business may never get that revenue back. Thinner profit margins and a focus on cost cutting mean some firms may lose key workers, vendors and the ability to invest for the future.

The pain is acute at companies with high levels of debt or that were struggling before the outbreak. Already, shale oil driller Occidental Petroleum Corp., OXY 19.93% laden with debt from its $38 billion purchase last year of a rival, has slashed its dividend and spending plans. Boeing Co., BA 9.92% wounded by the grounding of its 737 Max jet, has frozen its hiring and maxed out its credit lines.

◊ 7 Ways to Create a Sustainable, Passive Income for Life ◊

“If this lasts a few months, we will start seeing retail casualties pile up,” said Jerry Storch, the former chief executive of Toys “R” Us Inc. and Hudson’s Bay Co.

The respiratory illness, which first paralyzed many of China’s factories, has now frozen businesses across industries. Airlines have cancelled thousands of flights. Americans are now expected to buy 1.5 million fewer cars this year, one analyst predicted. Major sports leagues have suspended play indefinitely, dealing a blow to venues and broadcasters.

“I’m tossing and turning at night about it,” said Aron Ain, chief executive of Kronos Inc., a software maker with 6,000 employees. “I’m uncomfortable because I haven’t been through it before.”

The spread of the virus has led to a nearly endless stream of hard-to-answer questions from Kronos staff, like whether or not to travel to client meetings. Some clients are starting to put off purchasing decisions, Mr. Ain said, adding that, a week from now, it could be more.

There have been few mass layoffs so far in the U.S., which before the outbreak had the lowest levels of unemployment in decades. During the 2008 financial crisis, nearly six in 10 companies stopped hiring or decreased staffing, while 35% froze pay, according to executive search firm Korn Ferry.

“Cutting muscle and hurting your ability to recover is far more damaging to an organization than limping along with a couple of quarters of extra expense,” said Bob Wesselkamper, a vice chairman at Korn Ferry.

Declared a global pandemic on Wednesday, the new coronavirus had infected more than 125,000 people in more than 100 countries. More than a third of the infections globally have been outside of China. They include a Fiat Chrysler Automobiles NV worker at an Indiana plant and the CEO of British telecom giant BT Group PLC.

Inside China, the rate of infection has slowed after the government locked down much of the country for more than a month. Factories are restarting production and workers are returning to their jobs. Apple Inc. reopened all 42 of its stores in China on Friday.

◊ 7 Ways to Create a Sustainable, Passive Income for Life ◊

Businesses are adapting to the rapidly changing public-health guidance, sending workers home, canceling events and switching to teleconferencing. BT said its chief executive, 53-year-old Philip Jansen, has self-isolated and will work remotely. It will deep-clean its London headquarters. Fiat Chrysler said it would quarantine some workers from the Indiana factory but the transmission plant would continue normal operations.

U.S. consumer spending was strong before the virus surfaced, and not all business activity has stalled. PepsiCo Inc. struck a nearly $4 billion deal this week to acquire the maker of Rockstar energy drinks. Insurance broker Aon PLC agreed to buy a rival for nearly $30 billion, the biggest deal of the year on one of the wildest days for markets.

Just as households are stocking up on supplies and preparing for an uncertain future, companies are making similar moves by making sure they have credit lined up and cash they may need, said Gregory Daco, chief U.S. economist at Oxford Economics. “The shock has morphed in the last couple of weeks,” he said.


◊ 7 Ways to Create a Sustainable, Passive Income for Life ◊



One thought on “How A Virus Upended The World Economy

  1. Pingback: How A Virus Upended The World Economy -

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.