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Reopening the economy: Will North Carolina suffer permanent damage?

COVID-19 is not only impacting our health, it's also taking a toll on the economy. We discuss how the economy impacts your personal finances.

Health officials are warning we could see a lot more COVID-19 cases if states reopen business too quickly. On the other hand, governors are receiving a lot of pressure to stimulate the economy. Local financial professional Scott Braddock joins us this morning to discuss the far-reaching economic impact.

Q: What has been impacted by COVID-19?

A: Businesses - The U.S. economy shrank more than expected from January through March at an annual rate of 5%.The Congressional Budget Office estimates COVID-19 will cost the economy $8 trillion over the next decade. Industries taking a hit include tourism, traditional retail, professional sports and entertainment, and movie theaters. Small businesses are at risk of shutting down permanently unless they are able to find a way to recoup costs and get back to some level of regular operation. 

Jobs & Unemployment - More than 45.7 million people have filed for unemployment since mid-March when the pandemic began. Lawmakers have passed two stimulus bills to help the unemployed, struggling families and small businesses. These bills included a one-time direct payment of up to $1,200 for individuals and $500 per child. Small businesses can apply for forgivable loans, and laid-off workers can receive an additional $600 each week for up to four months. That’s on top of the unemployment benefits they receive from the state. 

Consumers - Overall spending was down 13.6% in April. But despite social distancing and businesses being shut down, many of us are spending more money. The $1,200 many Americans received was used for necessities, but many people also spent the money. Some big-box stores say they saw an increase in sales around mid-April once the stimulus checks were hitting customers’ bank accounts. 

Q: How does the stock market play a role in the economy?

A: The stock market can impact the economy and consumers, but the two don’t always go hand-in-hand. For example, the stock market crash in 1987 didn’t have a serious impact and the economy continued to grow. If stock prices stay low, it could impact a business from growing and paying employees. The S&P 500, Dow Jones, and Nasdaq all closed out the month of May on a positive note for investors. Some credit the rebound to many states talking about reopening businesses and potential COVID-19 treatments on the horizon. 

Q: How can we protect ourselves and our money?

A: Don’t Take on More Debt - Consumer debt has hit a new record of $14.3 trillion - That’s $1.6 trillion more than the record set during the financial crisis in 2008. Organize debt by account, the total amount due, interest rate, and monthly payments. Attack the lowest balance first, making minimum payments on all the rest. Get that first account knocked out, and build up momentum to keep going. 

Start an Emergency Fund - A recent survey found more than half of Americans have less than $1,000 in their savings account. When families don’t have money to face an unexpected expense, like a broken-down car or a medical bill, they may have to borrow to cover the tab - and that can lead to a cycle of debt. An emergency fund can act as a safety net. I recommend my clients have at least 3-6 months’ worth of savings in the bank. Set up auto payments and pay yourself! Start by setting aside $25 from each paycheck that automatically goes to your emergency fund. Before you know it, you will be prepared for the unexpected!

Put a Plan in Place - If you don’t have a long-term financial plan, now is the time to meet with a financial professional who can help you set savings goals for retirement and create a plan to reach them. Our goal is to protect clients from downside risk in the markets as they near or enter retirement. A lot of people are pushed into investing in the stock market, but that doesn’t mean they are happy or comfortable. I work to give them the protection they need to have a good night’s sleep. My goal is to offer peace of mind no matter what happens with the economy or the stock market.

Q: What does recovery look like?

A: Even though we are seeing businesses and restaurants reopening, it’s still going to be a long time before we’re attending sporting events, concerts, and other activities involving large crowds. But the economy may bounce back and be even better than it was pre-pandemic if we make up for the shopping we haven’t been doing, go out to restaurants and enjoy those trips we had to postpone. Even if restrictions are lifted, consumers still might hesitate to spend money; resulting in a slow recovery. We could also see state and local governments cut spending and raise taxes. We might also see an increase in demand for government programs like Medicaid. 

Learn more about our retirement planning process on Scott's website, scottbraddockfinancial.com