This article was published by The McAlvany Intelligence Advisor on Wednesday, April 1, 2020:
Waffle House restaurants almost never close. As one customer wrote: “I swear I’ve eaten at a Waffle House where a tree came in the front window and good chunks of the roof came off in bad weather, and they just kept right on serving like it was a Tuesday.”
The chain just announced that it has closed nearly 400 of its more than 2,100 restaurants.
FEMA considers the Waffle House as an indicator of the health of the overall economy. It uses what it calls its Waffle House indicator: Green, when the restaurants are open and serving a complete menu; Yellow, when they are operating on reserve or emergency power and offering a limited menu; and Red, when they are closed.
The closure of its restaurants reflects the news from the St. Louis Fed. Its President Jim Bullard just announced: “The unemployment rate … is going to be somewhere between 10 percent and … 42 percent.” The lower number is the most optimistic projection of present trends while the higher number is the most pessimistic. They reflect a minimum of 27 million jobs lost during the shutdown and 67 million at the worst.
Neal Boss, the director of public relations for Waffle House, tried to put those numbers into human terms: “To see something of this magnitude and [to] try to explain it in terms of human cost … we see how it physically affects people through the infection … there’s the human cost of the very individuals who have been disproportionately affected.”
Waffle House has a unique culture. It is a culture born of servant leadership, leading from the front and taking care of each other.
The fewer customers who have been coming in as things have gotten more and more difficult … has really impacted the number of hours that our hourly associates have been able to glean.
The Waffle House Index tells how the overall economy is faring, according to Dan Stoneking, FEMA’s director of external affairs: “The Waffle House test doesn’t just tell us how quickly a business might rebound – it also tells us how the larger community is faring. The sooner restaurants, grocery, and corner stores or banks can re-open, the sooner local economies will start generating revenue again – signaling a stronger recovery for that community.”
The Fed’s projections “do not account for any potential effects of fiscal measures,” said Bullard, “such as payroll support measures for small businesses or changes in the generosity of unemployment insurance that may be implemented [by the government] between now and the end of June.” Fed Chair Jerome Powell told NBC‘s “Today” on Thursday that, “if we get the virus spread under control fairly quickly, then economic activity can resume … we want to make that rebound as vigorous as possible.”
The longer the virus threat lasts, and the shutdown in response to it lasts, the greater the chance that a small business that closes will never reopen. In a typical recession, up to 40 percent of small businesses that close never reopen, according to the Insurance Information Institute. But this is hardly a typical recession; it is a man-made one. Many are hoping for a “V-shaped” recovery, while some are expecting a “U-shaped” one. None are predicting an “L-shaped” one.
The bounceback could be historic. Remember that workers who have lost their jobs are eligible for 39 weeks of state unemployment benefits, which will be supplemented by another $600 a week from the federal government for four months. That means that many of them will be receiving $1,000 a week or more, allowing them to make their rent or mortgage payments, and, aided by that $1,200 check from the U.S. Treasury, then spend robustly once the crisis has passed.
Senior economist Jacob Oubina of RBC Capital Markets expects that the economy will surge by 12 percent in the third quarter, and then return to normal in the fourth.
Keep an eye on your local Waffle House. When the lights come back on, it’ll indicate that the economy is returning to normal.
The New York Post: Why FEMA watches the Waffle House menu during hurricanes
The New York Post: Even Waffle House is closing restaurants amid coronavirus pandemic
The Epoch Times: Fed Sees 47 Million Jobs Lost and Unemployment at 32 Percent