By Karleen Kos, PSAI Executive Director
We are in circumstances that are unprecedented in our lifetimes. As a result, it is nearly impossible to predict the economics we might expect for portable sanitation over the next six to 18 months. Anyone who says they know what will happen has either time-traveled from the future or missed their medication.
So, this article is not going to focus much on trying to predict exactly what will happen in immediate future. Instead, it is aimed at giving you the information you need to discern what may be relevant for your portable sanitation business future. In part II of this article, we also share the insights of several portable sanitation professionals who are doing exactly that. Taken together, we hope this information will be helpful as you plan for your company.
Be aware of macroeconomic developments but pay more attention to how those trends that affect portable sanitation in your area. Last week you undoubtedly heard the overall economy, badly battered by the coronavirus, shrank at a record 32.9% annual pace in the second quarter. Statistically this represents the deepest recession in American history. This news is not helped by a World Bank report that suggests the current coronavirus-fueled recession could be the worst since World War II worldwide. Considering that more than 60 million people died in WWII and economies from Europe to Asia Pacific had been decimated, it is fair to say that economists around the globe are preparing us for a long haul.
Despite the “doom and gloom” in these aggregated numbers, large pockets of optimism remain. The market has rebounded and 85% of companies report beating their earnings per share estimates by an average of 15%. Although consumer confidence has dropped somewhat, they are still spending money, and many portable sanitation companies report their numbers are as good or better than prior years although their mix of revenue sources has shifted.
In the third quarter the US economy is expected to improve from last week’s numbers. However, the surge in coronavirus cases in large swaths of US territory and worry over passage of a new package of government-funded benefits may mute the positive effects of a bounce back. Economists polled in mid-to-late July by MarketWatch predict GDP will expand at an 18% annual pace from July to September, though these estimates are likely to be coming down as August continues. Economists and experts agree that the economy won’t truly recover until the coronavirus pandemic is contained without triggering another wave of infections when lockdown measures are released.
Although no one knows for sure when that will be, experts are making educated guesses. The Conference Board, a US-based nonprofit business and research group with members in 60 countries says, “… reaching a full recovery in global GDP to prepandemic levels could take until mid-2021. For mature economies [like the United States] output levels won’t recover until the beginning of 2022 at the earliest.” The Congressional Budget Office (CBO) has gone so far as to predict full recovery of our economic output won’t occur until 2029 and won’t even start until next year.
There is another bright spot. If you owe money on your business or equipment—or expect you will need to borrow money to expand— you will be glad to know that interest rates are expected to remain at historic lows. The Fed has already indicated it will keep the federal funds rate (a key short-term interest rate) close to zero through 2022 — which is good news for borrowers needing to finance business loans. Longer term, the Fed will be focused on maintaining both interest rates and kick-starting “effective” inflation at levels that support the broader recovery. It could take other actions — such as buying long-term bonds — to help engineer recovery over several years.
All of this is interesting and important information. But what matters more is how the underlying factors in these larger trends affect your particular market. If you depend on contracts related to air travel, tourism, large group gatherings, and other special events, these macroeconomic issues are going to affect you considerably over the next year or two. If your business is based on things less affected by COVID-19 such as agriculture, mining, and some types of construction, the overall trends will have less of an impact. However, you can make adjustments in your business to thrive even during times like these, as numerous portable sanitation companies are doing every day. In part II of our economic coverage you will learn some of the ways your colleagues have found to “make lemonade out of lemons.”
Things to watch. From an economist’s point of view, a recession ends when certain market requirements are met. From a personal point of view, you care most about your ability to run your business profitably, pay your bills, and secure your financial future. So now is the time to adjust your sails accordingly. In the short run, here are some things to watch to help you gauge the economics of your particular business and market area.
- Legislative action or inaction. In the absence of growth, economic stability is currently an important goal. When and how consistently stability will return—in spite of the uncertainties of COVID-19— depends heavily on Congress and your state legislature in the short run. As of this writing, the first relief package has expired, and there is much speculation about when and if Congress will pass another one. Your state legislature may also be considering relief for your state or county. There are abundant arguments for and against such action, and in the absence of actual proposals, the PSAI cannot offer insight on the implications of potential legislative relief.
What can be said is that prolonged uncertainty is not our friend. Ambiguity tends to cause people and businesses to hold off on spending decisions, and this would generally reduce the need for portable sanitation.
If legislation is passed, consider the impact on your local market. Will it tend to promote construction activity, events, or activities such as COVID testing sites? Will there be school/facility reopenings that will increase the need for portable sanitation? Will the actions provide money to local governments that will then need more portable sanitation for the services they run? Watch where the money will be spent and translate that into portable sanitation sales.
- Your local COVID-19 numbers. A great deal about how easily you can carry on business will depend on how many people are sick locally, how many have been exposed, and how that is affecting your institutions. For example, many convention centers and hotels are seeing events that were planned for the fall of 2020 cancel due to increased COVID risk. Areas harder hit by COVID are seeing more cancellations than areas with less risk. The connection between real or perceived COVID risk and willingness to visit your communities will obviously have an effect on portable sanitation needs in the affected cities.
Meanwhile, there may or may not be increased need for portable sanitation on worksites, at healthcare institutions, and at COVID testing sites. Portable sanitation on worksites tends to depend on construction trends (see below). The need for portable sanitation at hospitals and at testing sites is linked to existing infrastructure, plans for overflow care of COVID-19 cases, and funding for testing. Think about how you can turn these trends into business for your company. Additional equipment, hand washing facilities, and service is essential for slowing the spread of COVID-19; make sure you are able to explain that to your customers.
- Construction trends in your area. Since the beginning of the pandemic, construction has generally been seen as essential. So the issue is not whether construction will be allowed to continue, but how COVID will affect the need for construction projects overall.
There was a record-high backlog on construction leading into 2020. This accumulation of jobs muted the effect of the pandemic on construction in the early part of the year. That began to change in the second quarter. Dodge Analytics, a major resource for construction data reported,
“The full force of the pandemic bore down on U.S. construction starts in April as economic activity virtually shut down and local restrictions on construction took effect. […] Starts plunged 22% below the first half of 2019, with only warehouse construction posting a very small gain. Commercial and multifamily construction starts in the top 20 metropolitan areas posted a similar drop of 22% through the first six months of 2020. In the top 10 metro areas, commercial and multifamily starts slid 21% and only one metro area posted an increase.”
Whether this slowdown has affected your market or not, there is always some construction happening and, in the midst of the pandemic, their needs for equipment and service should go up not down. Here are the construction trends to watch in order to plan for your business:
- Projects in planning may be canceled due to drop in demand, decline in capital or slowdown in the overall economy. Retail stores and restaurants may be most likely to cancel expansions. Try to stay on top of this so you can hustle after the jobs that will actually come to fruition.
- Educational facilities may delay or accelerate starting new construction. This will vary based on whether your local institutions view the work as essential for postpandemic conditions. In general, colleges will be cautious about building, while local schools that have already secured funding may move more quickly.
- Transportation facilities such as airports and municipal transit stations may postpone later phases of long planned growth.
- Residential construction will depend on market saturation, housing prices in your area and whether more workers will be at home. In general, residential construction was expected to go down in 2020-21. However, low interest rates and mobility due to remote working may increase building of new residences in some markets. For example, in areas where people often have vacation cabins or cottages, there is already a trend toward moving out of the city and living full time in vacation-type dwellings if remote work will likely continue. Others who know they will be working or schooling from home indefinitely may choose to find housing with better home office space. As long as interest rates remain low, employed people will likely stay mobile.
Actions you can take. Unless you are an infectious disease expert in your spare time, there is likely nothing you can do to change the forces that will impact the economy over the next two years. However, you don’t have to sit by and watch these things damage your company. You can take control. Here are some things you can do right now to help you through until the fog clears and the sun comes out.
- Adjust your daily operations for the long haul. Infectious disease experts from around the world have differences of opinion on many things related to COVID-19, but most agree it is not going away any time soon. Currently, the science is mixed about whether that is even possible without a vaccine.
The best guess on when a vaccine will be widely available and safe enough for most people to take is sometime in 2022 or after. So think about how you will run your business in a socially-distanced world. Ask and answer these questions with your team:
- What does this mean for your ownership family? Your staff team? Your customer prospects?
- What things have you put in place “temporarily” that need to but updated for a more permanent situation? Think about policies, contract conditions, employee accommodations, equipment and PPE modifications, and customer messaging. Assume that the “normal” you knew before March 2020 will never come back.
- When COVID illnesses go up, they are more likely to affect your workers, directly or indirectly. The workers may be sick themselves and call out of work. They may have to take care of children because schools are closed, or they may just have to stay home due to quarantine requirements. This can dramatically affect your ability to put your trucks on the road every day. Have a plan. This is especially important as fall and the regular cold/flu season adds confusion and additional absenteeism to the mix.
- Plan for your business using new assumptions. Maybe some distant day a semblance of the “old normal” will return, but that’s too far away to contemplate. Therefore, you must adjust your business model to the conditions that currently exist. What equipment do you need? What business options do you need to explore? Where are the new customers? Pay attention to prospects to adjust your business in light of the new restrictions and things happening in your market. Here are some opportunities and threats to consider.
- The shift to online consumption will reduce the number and size of brick-and-mortar buildings. This could affect the number and type of construction jobs in your area. Figure out where the construction jobs will be and you are one step ahead of your competitors.
- Similarly, the rise in online buying will increase the demand for truck drivers and warehouse workers. Plan now for even greater competition for service technicians, mechanics, and yard help.
- Large entertainment venues are likely to struggle more than smaller ones, but all of them are going to have to re-think how they handle crowds. There may be abundant opportunities to help provide portable restrooms, hand wash stations, sanitizer, and attendant services so that events are even allowed.
- Long distance travel including tourism will likely be down considerably for the short term. If your area depended on large numbers of people from outside the region, think about how you can work with customers to overcome this. Are there things you can do to create an environment that is desirable enough to drive to? How can you help customers draw locals to these attractions and provide safe sanitation options?
- Remote working is likely here to stay. Think about whether you can save money on overhead by reducing your office space and having your office staff work from home.
As far as what will happen with COVID-19, infectious disease expert Mike Osterholm from the University of Minnesota explains it this way. “Right now we are experiencing a national forest fire of COVID that is readily consuming any human wood that’s available to burn.” He says the process will continue until the fire is either put out with a vaccine or it runs out of humans to infect. While no one likes to say it, people from President Trump to my next-door neighbor all believe things with the pandemic—and possibly the economy overall—will get worse before they gets better—but that doesn’t mean your business can’t flourish.
Our businesses and our Association will continue to operate in this strange new world. Together we will continue to serve our customers who are, at long last, discovering hand washing and more frequent service as essential parts of a safe, sanitary, positive portable sanitation experience. Together we will be creative, dogged, and determined. Together, we will provide better worksite, better weekends, and a better world.
**To continue Economic Outlook Part II – Ideas from across the US with insight from both suppliers and operators, click on the August 5 issue of Association Insight newsletter.