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Manufacturers got a big bounce, but service businesses still face a big climb.

Zac

Oct. 29, 2020

The pandemic didn’t just shrink the U.S. economy. It also reshaped it, at least temporarily — shutting down some industries almost entirely, while leading to a rise in demand in others. Consumer spending on goods was up sharply last quarter, rising nearly 10 percent, more than enough to offset a relatively mild 2.8 percent decline in the spring. Spending on durable goods was particularly strong, as Americans rushed to buy cars , recreational vehicles and equipment for their new homebound lifestyles . Spending on services, on the other hand, collapsed in the second quarter, falling 12.7 percent as consumers abandoned restaurant meals, gym classes and family vacations. Services spending rebounded 8.5 percent last quarter, but remains 7.7 percent below its pre-pandemic level.
Two Wisconsin businesses illustrate the diverging paths of the two sectors. When U.S. auto plants shut down last spring, it meant an immediate loss of business for Husco International, a manufacturer of hydraulic and electromechanical components for cars and other equipment. The company cut back production and furloughed many of its workers.
But by the end of May, car factories were humming again, and Husco’s business had begun to bounce back. In September, its automotive division had its best month on record. Austin Ramirez, the company’s president and chief executive, said he still expected sales to be down about 10 percent for the full year. Despite September’s strong results, the pandemic and the economic weakness it has wrought are still dragging down demand. And the virus is causing other complications, leading to more employee absences. But the damage to his business is not nearly as severe as in the last recession a decade ago. “In a cyclical business like ours, this has actually been a fairly mild recession that we’ve had tools to manage,” Mr. Ramirez said. For Becky Cooper, it is a different story. Bounce Milwaukee, the family entertainment center that she owns with her husband, shut down in March and has yet to reopen. They experimented over the summer with selling takeout pizza and offering drive-in movies in the parking lot, but sales weren’t enough to offset costs.
The Coopers began the year dreaming up plans for what they would do once they paid off the Small Business Administration loan they used to open the business six years ago. Instead, they had to drain their bank accounts and take on more debt to get through the pandemic. Now, with coronavirus cases spiking in Wisconsin, they don’t know when they will be able to welcome customers again — or whether they can hold out until then. “I’m watching those numbers go up and just feeling so powerless,” Ms. Cooper said. “The beginning of March seems almost insanely optimistic to me, and I don’t see how much past that we could possibly go.”
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