Additional indications of economic destruction from the shutdown.
Here are a few articles in the last few days describing the economic catastrophe that is expanding daily as we watch. Estimate is out that one out of four employees in Los Angeles are out of work. Higher education as an industry is in danger.
4/14/20 – American Enterprise Institute – The International Monetary Fund’s coronavirus reality check – The IMF expects a worse downturn than the ‘08/’09 Great Recession. Global output is expected to have a US$9 trillion loss in output from what would have been expected.
For the US and Europe the loss will be equal to two years worth of economic growth.
4/17/20 – LAist – LA’s Latest Unemployment Numbers Are Staggering. An Estimated 1.3M Jobs Have Already Been Lost – Percent of LA county residents who are employed is estimated at 45%. That is down from 61% in March. The difference is 16%. Divide that by the 61% employed prior month indicates 26% of the people working a month ago are now unemployed. Data is from researchers at USC.
One out of four people in LA county who were working before the shutdown are now out of work.
Third order ripple effects:
4/19/20 – KTLA 5 – “This is the worst it’s ever been”: L.A. Mayor announces city worker furloughs during State of the City address – The mayor announced that all city workers will take 26 days of unpaid furlough in the next fiscal year which starts July 1. That is essentially a 10% pay cut.
Impact on higher education
Auditors might want to keep the following articles in mind as they address going concern issues soon.
4/15/20 – CNN – Universities began considering the possibility of canceling in-person classes until 2021 – Article says many universities are doing contingency planning’s for the fall semester being online. Many schools have canceled the in-person events for the summer. It is starting to look like resuming on-campus events in September is the best case with January looking more likely.
4/15/20 – New York Times – After Coronavirus, Colleges Worry: Will Students Come Back? – Article gives opening example of a student who had been accepted but decided to attend neither a prestigious school on the East Coast nor one on the West Coast, instead matriculating at a state school 15 minutes from her home.
Critical threats to the entire college and university ecosystem include (but are not limited to):
- Cancel lucrative spring sports seasons
- Refund of spring 2020 room and board
- Pressure to refund tuition for spring 2020
- Pressure to discount tuition in fall 2024 online classes instead of in-person
- Study abroad programs canceled
- Likely dramatic loss of international students, all of whom pay posted price without discounts
- Students perhaps deciding to attend a less expensive school
- Students perhaps attending a school closer to home than far away
- Students perhaps taking a year off or perhaps reconsidering the decision to even go to college – gap year or gap semester
- Danger that postponing start of the fall semester by a few months could push the academic season back so far that it might require canceling one semester – Postponing to a loose starting date that then slips to November or December for the “fall” semester might result in cancelling a semester. Picture ending the ‘spring’ 2021 semester a week or two before starting the fall 2021 semester.
Impact on major sporting events
4/17/20 Wall Street Journal – Why a Second Wave Could Be Even Worse for Sports – There probably will be another wave of covered infections in the fall. It may be a huge wave. It may be a small wave. It may be a mere echo from this spring.
Whatever the size, the article says there is always a second wave after every major epidemic.
The challenge is that next round will be around the beginning of the college and professional football season. There are also a number of major sporting events which have been postponed to the fall from this spring. The Kentucky Derby, Tour de France, some marathon, and several golf tournaments will be underway. Big concerts may be underway by then too.
The entire fall sports lineup could be a challenge.
Note to CPAs: factor that into your going concern calculations.
Update 4/20 – 4/20/20 – BBC News – Disney stops paying 100,000 workers during downturn – A hundred thousand staff are going on furlough. Disney will continue paying for employee’s health insurance. The ripple effects of closed theme parks include air transportation, ground transportation, hotels during stays at the parks, and meals during vacation.
Some numbers from the article:
- $500M – monthly savings from laying off 100,000 people
- $467M – average monthly bottom line profit from parks and product sales in each of the last three months of 2019