But as lockdowns have been lifted in most of the country and businesses have been able to reopen, that supply shock has waned, only for a new problem to emerge: weak demand. In other words, a supply shock has been replaced by a shock to demand.
Some of the weakness in demand is because we’re on the verge of a classic recessionary cycle: Since the stimulus payments to unemployed workers ended in July, people either have less money to spend or are worried about spending it, which means businesses have less revenue, which makes them cut back on hiring and investment, which means less spending.
But what makes this demand shock exceptional is that the U.S. still has 40,000 to 50,000 new Covid-19 cases and 600 to 700 deaths every day, and as a result lots of Americans are still leery of doing normal, not particularly indulgent things like eating out, going to the gym, or going to the movies. A recent survey by research firm Datassentials, for instance, found that 58% of those surveyed described themselves as “uncomfortable” with dining indoors, and 36% described themselves as “very uncomfortable.” Not surprisingly, then, no matter how creative restaurants get, traffic is still down sharply in most places, and 2.5 million restaurant workers who lost their jobs in April remain unemployed. Similarly, gyms have been open in most states for months now. But a recent survey of 5,000 gym-goers by RunRepeat found that 70% haven’t returned and 43% said they had no plans to go back. Half a dozen gym chains have filed for bankruptcy in recent months, including 24 Hour Fitness, the owner of New York Sports Club, and Gold’s Gym, with many of them permanently shuttering a majority of their locations.
Or take movie theaters. By September, theaters were open in 44 of 50 states, and Warner Bros. decided to go ahead with plans to release Christopher Nolan’s Tenet, which had been one of the most highly-anticipated films of the year even before the pandemic hit. Even though theaters in New York City and Los Angeles remained closed, Tenet opened on almost 3,000 screens across the country. But even as Tenet did big box-office numbers overseas in countries where the virus has been contained, it made just $9.4 million on its opening weekend, despite facing essentially no competition. The hope had been that Tenet would prove people were ready to go back to the movies. Instead, it proved most weren’t. Hollywood studios concluded there was no point in trying to release big films for the rest of the year, and pulled their tentpole films from the fall schedule. And thanks to the combination of consumer anxiety and the lack of new content, Cineworld, owners of Regal Cinemas, shut down all 536 of its theaters in the U.S., while AMC, the largest U.S. theater chain, says it could run out of cash by the end of the year.
This shouldn’t be a revelation. In fact, myriad studies have now shown that in the early days of the pandemic, people began voluntarily socially distancing and avoiding places they perceived as risky even before lockdowns were put in place. And if you go further back in history, during the 1918 Spanish flu pandemic, businesses stayed open in most cities, yet economic activity still fell sharply, and contemporary accounts suggest that the economy only started to rebound when people became less afraid of catching the flu. The point is that lifting stay-at-home orders and opening restaurants isn’t enough: Until consumers feel safe, they’re going to stay away.