Emerging from the pandemic

The important trends

March 2022

Phil Ruthven AM

The COVID pandemic, now into its third calendar year has caused 6 million deaths (just 5%) of the 120 million total deaths) across the world over a two-year period.  In Australia, we were told to fear, as part of life and death in society, worse scenarios of thousands of COVID deaths a day in 2020, but outcomes were instead 50 a day.  Yet the pandemic seemed to be viewed as another historical and significant change agent.

Firstly, on a positive note, it is more than likely after the pandemic, that Australians will be better off, with longer lives, better health, and higher household incomes by the end of this decade.   That’s been true each decade for well over a century. But change is constant, as is said, and has been since the big bang nearly 14 billion years ago.  Humans have been in an exponential rate of change since the Industrial Revolution – which began in the 1760s in the UK – in terms of population growth, technological change, economic output, and socio-political ideologies and protocols.  Australia has gone along with these changes, some of which it created.

The 2020s decade is already shaping up to be a discombobulated decade like the 1970s, this time with a long pandemic, warmongering, rising interest rates, stock market crashes, severely polarized household incomes in a lot of nations, rising climate change challenges, and distorting popularism over truth and rationality.  But most of us will survive all these and end up better off at the end of the decade.  Almost all the changes we think have emerged because of the pandemic had existed before the pandemic, and emerged in China in late 2019. However, there is no doubt COVID temporarily accelerated the rise and fall of many of these pre-existing changes, be they more working from home, where the jobs are, online shopping, blockchain and cryptocurrencies, the rise of popularism, despotism threatening democracy, and Digital Era (digitization) impacts in business and the home.

The below brief summaries create a picture of our post-COVID world.

Jobs and work patterns

Apart from the fear and panic engendered by well-meaning health officials and heads of state, the pandemic had its greatest expression in the jobs market and work patterns.  The following exhibit shows the disproportionate impacts on the nation’s 19 industry divisions over nearly two years, using the actual change in the total hours worked by all employees.

Firstly, there was no growth at all in the total hours worked; and secondarily, over half (10) of the industries were working fewer hours after the 21 months, compared with March 2020.  Job keeper was the rescue measure taken by our federal government to prevent impoverishment. However, we can expect a resumption of the long-term trends in relative growth and decline of jobs by the industry as shown in the next chart from 2023. Most if not all will get back to positive growth; but some more than others.

Another pre-existing trend before the pandemic was working from home.  In early 2020, around 30% of our 13 million workforce was working part-time or full-time from home.  This jumped to 69% at a peak during the pandemic, but is now down to 45% (25% FT and 20% PT).  It may settle nearer to 35% before resuming its long-term trend growth upwards, particularly the part-time trend.

So, working from home was already a pre-existing trend, as said, aided by technology and boosted with the advent of the Digital Era in 2007.

Technology

Technology and innovation played a transforming role in the Agrarian Age, mainly with transport.  But technology has played a bigger if sometimes a subliminal role in our lives since the birth of the Industrial Revolution in that age of goods dominance in the economy.   Then, a ubiquitous new utility emerged in the form of power that came in two eras.  The first era was waterwheel, wind, and steam power; and the second era came in the form of electricity.   And add telegraphy to those power changes.

This phenomenon of a new utility for a new age is yet again a vital feature of the current Infotronics Age of service industries growth over more than five decades since the mid-1960s with its new information communication & technology (ICT) utility.  It too has come in two eras.  The first was computers and software; and the second era – since 2007 – came with the advent of the digital era of fast broadband, artificial intelligence, big data, and analytics.  This new utility is changing our living, working, and leisure patterns at a fast pace.

The impact of this new utility on Australia’s economic growth has been more disruptive than growth generating, given our continued slide in GDP growth over the past 5-6 decades, from 5-6% per annum to  2¼% pa in the 2020s.  We are seeing – since the 2007 Stage 2 of the ICT utility – traditional industries using high-tech and other success factors to make a break from the old methods. In the USA, there are some spectacular examples can be seen in the following:

  • Tesla is a car manufacturer, creating a new third lifecycle with batteries instead of ICE, using robots, and dispensing with dealer networks, service outlets and petrol stations;
  • Amazon is a huge global online department store and bookseller;
  • Alibaba is also an online department store;
  • Alphabet (mainly Google) is a new generation online encyclopedia called a search engine;
  • Spotify and Netflix are online music stores and cinemas, termed streaming;
  • Apple iconized and miniaturized computers and took  telephones to online multi-dimensional devices ;
  • IBISWorld was a strategic consultancy firm that took industry and market research to a global online database service
  • Uber and Uber Eats are new-generation taxi operators and express couriers

Hitech is not a new industry, it’s a must-use utility to be incorporated into all industries.  There are more than 500 classes of industry in the USA and Australia, over and above the examples cited above, that will transition or metamorphosise over time to a greater or lesser extent.  And of course, the Digital Era of technology is having transformational impacts on our working protocols and lives as we will return to shortly.

Households and Lifestyles

Before the pandemic, we can see the changing priorities of spending by households in Australia in the exhibit below, over a century or more.  Like all developed economies, spending on goods had shrunk from a majority of spending (62%) when we federated early last Century to around 21% in 2020 at the outbreak of COVID 19.

The pandemic saw a temporary reversal of this trend as households spent more money on home durables – especially electrical and electronic goods – as they made their enforced incarceration more communicable, entertaining, and livable.  Home delivered fast foods boomed, as restaurants were shut.  Entertainment and hospitality shrank, transport shrank both domestically and (especially) internationally, and savings ballooned as there were far fewer opportunities to spend the incomes. In 2021, we then saw the biggest rise in housing prices – over 20% – supported by record-low nominal mortgage interest rates. Of course, our transport and communication activities have been through astonishing transformation via teleconferencing (Zoom, Teams, etc.) and social media (Facebook, Tik Tok, et al).  But online shopping for both goods and services has been equally spectacular and contributed to the decimation of high street retailing, and the topping-out of shopping-centre growth.

All in all, there were profound changes in spending and lifestyles.  And by the middle of this decade, most of the pre-pandemic changes – favouring spending on services – will resume.  Travel and hospitality, in particular, were heavily curtailed.

Finance & Stock Markets

The pandemic, as said, saw the lowest interest rates that businesses and households had experienced in living memory.  However, if inflation was deducted to expose real rates, then much lower rates – indeed severely negative rates – existed in the mid-1930s, late 1940s/early 1950s, and the mid-1970s.  They are again negative today as we and the economy struggle out of the pandemic and the recession, but will rise slowly and by the end of the decade may be getting back to historical averages.

Where to invest money is an important challenge.  For businesses, the answer is easy: on intellectual property (IP) and digitization (fast broadband, data, AI, and analytics), not hard assets which can be leased. For households, it is a case of playing safe through the first half of this decade with shares, property, and interest rates all gyrating if not collapsing in the case of shares.  Super is probably the safest, having – as it does – a mixed portfolio of shares, property, infrastructure, and interest-earning assets.

It is worth touching briefly on international shares as they now form a major part of the shares segment in superfunds, local shares being now a minority due to under-performance compared with our American and European cousins, and the sheer size of superfunds (over $ 3 trillion) with limited availability of local equity stocks. The two exhibits below show the impact of the Internet, then the Digital Era that underpinned the new entrepreneurs in creating new upward share price “tunnels” in the USA.  We suggest they will enter flat tunnels again in due course, and may go up again, or begin an articulated downward direction.  Corrections if not crashes will occur in both indexes and stocks, but good new age stocks will recover.

 

You can expect it to be a turbulent and discombobulated decade indeed.

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