The rubber band recession

I am not a professional analyst of the economy. But even for the professionals, there are significant uncertainties. I don’t mean to strike fear with this post. I mean to encourage preparedness — or at least as much as we can in the short time we have available. Please do not take my words as gospel or financial advice.

The economy is screeching to a (temporary) halt. This happens. Economic systems go through periods of expansion and contraction.

Typically, real impacts on economic productivity are gradual with periodic spikes based on fear and uncertainty, often as triggers are hit, and the worst is finally realized. (Think of the mortgage and real estate fallout of the last global financial crisis, for example.)

Even in times of extreme economic stress, the world keeps spinning, businesses operate as long as they can, and everyone adjusts.

This time, in many countries around the world, the rapid expansion of COVID-19 cases has brought economies to a halt. Immediately. And completely. Entire cities on lockdown. Full travel bans. Every store closed. Europe is in the throes of crisis just as much of Asia is getting a grip on the worst of it. From the metrics I've seen, the United States is two weeks away from what Italy is going through now.

This creates an immediate and crushing stoppage to regular economic activity.

Corporate debt is at record levels, and these shocks to regular money flows could easily force a whole bunch of businesses into insolvency without significant and imminent intervention. Even with temporary debt forgiveness, real cash flow could be cut in half — or more — for many types of businesses.

I do not mean to spread fear, but the web industry is not immune! It is an important time for every one of us — employer, employee, and self-employed — to consider our capacity to manage our lives in case we lose some, or all, income for a period of time.

The real impact on business could be significantly different depending on your line of business. I fear that consulting agencies are at the greatest risk, as a non-core expenditure simply gets “put on hold” until more certain times.

But subscription businesses are hardly an exception. Will people keep spending as normal on plugin licenses, SaaS products, and support? I don’t know. There’s a chance that people stuck at home get to work online or via entrepreneurship endeavors. That is what kickstarted many of the businesses thriving in the WordPress ecosystem today — people who began their own business in the depths of a recession.

Could this happen today? Yes. But WordPress today is different than WordPress twelve years ago. We’re a more mature space. The companies are less flexible. We don’t benefit as much from the exponential growth of a nascent web platform on its way to being a standard technology. We’re more susceptible to global contraction, I believe.

We must plan. Consider our reserves. Discuss things openly and honestly with our teams. Do not panic, but do not ignore the threat of severe and rapid global economic contraction.

I believe the recessionary effects have a good chance of being like a rubber band. If you can survive the cash crunch from halted economic activity, the likelihood of business activity returning to some level of normalcy is quite high after a few months of virus wrangling. I pray I’m right.

I’m trying to prepare myself for a rubber band recession. A deep hit, and a rapid bounce back. It’s certain we will see some lasting effects, but I believe the worst is about to hit us very quickly — as income streams dry up and the world hits pause.