Financial Experts See a Recovery That Will Look Different

As Miami-Dade joins the rest of America in preparing to put 2020 in the rearview, financial experts are reflecting on a year that brought one unprecedented event after another while trying to forecast what to expect next year.

The consensus is that that the economy will indeed recover, evidenced by a strong showing in the year’s third quarter when the nation’s GDP rose more than 33%, according to the US Bureau of Economic Analysis – a major rebound from the 31.4% drop the prior quarter.

“But it won’t look like it did before,” said CPA Meredith Tucker, entrepreneurial services principal at accounting and advisory firm Kaufman Rossin. “The way we connect will change, and for some businesses, the way they provide services will change.”

For many businesses, she said, successfully moving forward requires an action of opposites: accepting new ways to provide service and interact both internally and externally while taking a “back to basics” approach in the back office.

“Some of those basics are budgeting for the new year, cash flow projections, looking at liquidity and retaining earnings and capital,” she said, adding that businesses will also likely have to partake in some unfortunate aspects of re-budgeting. “No secret, some companies have to look at profit and losses and see whether some vendors need to be cut.”

Those tasks will affect some industries more than others. While some professional services, health care and digital-forward companies have not just survived but thrived since quarantine closures in March, others that depend a lot on in-person business – from movie theaters and restaurants to hotels and the cruise industry – have suffered.

For Miami-Dade’s hospitality and tourism industries to bounce back, there needs to be additional stimulus aid, including another round of Paycheck Protection Program (PPP) loans, and a majority of the populace must be vaccinated, said Claudia Cancio, director of relationship banking and senior vice president of First National Bank of South Miami.

For nearly eight months, lawmakers in Washington, DC, have been battling a follow-up stimulus package to the $2.2 trillion Cares Act, approved March 27, and the April 24 Paycheck Protection
Program and Health Care Enhancement Act, the PPP portion of which created a forgivable loan program to incentivize employers to retain employees.

First National Bank of South Miami alone issued 500 PPP loans totaling $80 million, saving some 8,000 jobs, she said. But those funds have long since dried up and need replenishing.

“Congress needs to get their act together and send this relief to businesses,” she said. “[If it doesn’t], there will be very serious consequences to the economy. Small businesses are the majority of all businesses, so the relief must happen.”

And the smaller and less organized the business, most likely the worse it has been affected during the pandemic-driven economic downturn, said Eddy Arriola, chairman and CEO of Apollo
Bank and director of the Federal Reserve Bank of Atlanta’s Miami branch.

An extra stimulus package would stabilize the economy and enable banks, businesses and governments to take the best actions possible in the next three to six months, he said. Ideally, the stimulus would provide direct aid to state and local governments, health care providers and individuals.

Another round of PPP loans, which banks would again administer to qualifying business applicants, isn’t as good as direct individual aid, which circumvents a flaw in the PPP system that favored more organized businesses that are also typically better capitalized and have more access to financial institutions, he said.

“The clients we worked with at first had their [stuff] together,” he said. “They had all their information and filled everything out correctly. The less sophisticated ones we couldn’t help as quickly. I’d like to see the next round go to more businesses and communities that don’t have as much access to banks or disadvantaged banks in urban cores or rural areas – not just another ‘let’s do the same thing, round three’ of PPP.”

Looking forward, Ms. Cancio said that the federal rollout of vaccines will, of course, “be a game-changer” once they reach the broader public. A recent Pew Research Center poll found that 60% of respondents said they’d “definitely or probably” take the Covid-19 vaccine today, but she expects the rate to be higher once proof of its safety and efficacy spreads.

“Getting the population to accept something new is always challenging, but I think that as the vaccine begins to be administered to healthcare workers, people will start trusting it more,” she said. “A lot will have to do with communication – the media, everything else – which will be crucial in how everything is portrayed.’

As for how far ahead businesses should plan with the information available today, the answer is a mixed bag. Ms. Tucker said Kaufman Rossin may work with clients on a six-month cash-flow analysis to consider alternate funding or ways to lengthen their payable cycle but quicken their revenue cycle.

“For our entrepreneurs, there’s that bigger picture where you take a step back and consider what the goal is for this business,” she said. “Is it a tech startup that you’re building intellectual property around with the hope to be out in three years? Because you might turn that differently than someone who plans to turn the wrenches for 30 years and build it up.”

Some companies now are doing mid-term planning, where they look at scenarios of what the future might look like in two to three years. The practice provides no real insurance against future, unforeseen downturns caused by the pandemic, she said, but it creates a sense of order.

“For instance, we work with folks on IT security,” she said. “Now your whole business has to be taken online, and if you’ve already invested in thinking down the line on security measures, you’re that much better off.”

But there’s only so much prediction that can be done, Mr. Arriola said, as every timetable for how long the pandemic would last and how effective the Cares Act and its programs would be was off.

The result is an overriding cautiousness leading into 2021, though South Florida is likely poised for great growth over the next three years, he said.

“People are moving to South Florida because there’s more space, more sunshine, low taxes and a great lifestyle,” he said. “The investments our community has been making in the last couple decades is bearing fruit. Goldman Sachs isn’t just potentially coming to South Florida because of the great weather and taxes. We also have very talented people and infrastructure, and while housing isn’t ideal, it’s a lot better.”

Throughout 2020, Miami-Dade refinanced billions in outstanding bonds amid what Director of Bond Administration Arlesa Wood described as “a historically low-interest-rate environment.”

That won’t last forever and likely won’t for long into the near future, Ms. Tucker said, but it’s helping now.

Mr. Arriola, conversely, said the word from the Federal Reserve is that interest rates not only can but should be low “for a long time,” an outlook largely attributable to a new school of thought to which many there have subscribed: modern monetary theory.

“If you spend more money than you have coming in, that’s a really bad thing – that’s what they said,” he said. “But the basic premise of [modern monetary theory] is that budget deficits don’t matter. As long as you have control over your own currency, have a strong, stable economy like the US and Europe, and as long as your GDP grows faster than inflation, you’re OK. You can keep printing money and deficit spending.”

Right now, the US is printing money at no interest rate, and it seems to be working. Myriad industries were hit hard and there were many unavoidable “economic casualties” during such a sudden and steep economic recession, but the economic state of the union remains strong, he said.

“A lot of people lost their jobs, which is not a good thing, and things were affected, but it wasn’t just because of economic collapse,” he said. “It was disruption of industries. A lot of things came into play. But the stock market didn’t collapse. Housing didn’t.”

And how long can the country continue its current spending and low-interest rate practices?

“That’s a bazillion-dollar question,” he said. “It’s never been done before. The Federal Reserve, in its public statements, say this needs to happen, and it can sustain itself for at least a decade. But who the heck knows?”