On Wednesday, as on the first day of any month, many companies and households will have bills to pay. This time, a lot will simply pile up.
Angela Rogan is unlikely to make the rent on her apartment in the San Francisco Bay Area. Katherine Anderson, who owns a cafe-bakery in Seattle, isn’t going to pay her $30,000-a-month lease. Even the Cheesecake Factory, a multibillion-dollar company, has told landlords not to expect an April remittance.
The trajectory of the U.S. economy will largely rest on how many payments go unmade, which bills are put ahead of others and the terms on which they are settled.
The $2 trillion relief package passed by Congress amounts to a grand attempt to flush the economy with cash so that the obligations of corporations and minimum-wage-earning tenants alike can be met as usual.
But much of the money will take weeks to arrive — too late for many — and once it does, the big question hanging over the economy will be how many unpaid rent notices, water bills and mortgage payments remain after the virus subsides and commerce resumes.
Should a significant portion be curtailed through negotiation or absorbed by the government altogether — such as loans that allow businesses to make payroll the next few months but can be forgiven when traffic returns — a coronavirus recession could be followed by a robust recovery in which commercial life looks something like normal. Should they linger and turn into long-term debt hanging over businesses and households, it will curb future spending and lead to a weaker recovery as the damage produces more layoffs, more spending cutbacks and more unpaid bills.
Consider the metal lockboxes in the 110 apartment buildings owned by Bridge Housing, a nonprofit affordable-housing developer that manages about 12,000 subsidized units in California, Oregon and Washington. On Wednesday, Bridge’s 30,000 tenants, most of them hourly workers with little or no financial cushion, will start dropping their April rent checks in the boxes. Those checks will be used to pay overhead, maintenance and mortgages.
Usually, no more than 3% of Bridge’s tenants fail to pay. But in anticipation of a disastrous April, Cynthia Parker, Bridge’s chief executive, had her finance team analyze possibilities that would have seemed unthinkable weeks ago: What if only half the residents pay their rent? What if only a third do?
Bridge is already trimming expenses, like cutting consultants on future projects and putting off computer purchases for the office. But if rent collections lag for long, it will have to look at more severe measures, like laying off workers. Even with a healthy cash cushion, the company can go only so long with such a steep revenue decline.
“We’re running models right now to look at how long we can last on operating reserves,” Parker said in an interview. “We’re in the middle of it, but it’s anywhere from three to six months before this starts impacting loans.”
That the United States is careening toward recession is now a given. That this recession will be brutal is also a given: Economists are projecting that gross domestic product could fall as much as 30% in the second quarter, which would rival the worst months of the Great Depression.
The depth and suddenness of that fall have forced swift decisions by businesses and households about which payments to make. Those decisions set off their own economic ripples, as laid-off workers cut back spending and landlords struggle to pay their mortgages.
“These are cascades that, once they get going, are very hard to stop,” said Claudia Sahm, director of macroeconomic policy for the Washington Center for Equitable Growth, a liberal think tank. “You’re already seeing it.”
For workers, weathering more than a few weeks without pay may be a challenge. The 11-year economic expansion left record low unemployment, but it did less to ensure financial stability. The Federal Reserve reported last year that 4 in 10 Americans would have difficulty covering an unexpected expense of $400.
Cori Aitken, 34, lost one job as a sales representative at Temescal Brewing, a small brewery in Oakland, Calif., and another job tending bar. Now she’s looking to cut her $1,900 monthly expense budget, which includes about $1,000 in rent and $300 for utilities, along with a phone bill, car insurance and loan payments.
The first thing she did was cancel her $90-a-month membership at the YMCA. When her credit card bill arrives, she’s going to make the minimum payment to preserve cash. With about $1,000 in savings and the expectation of $1,500 a month in unemployment benefits, Aitken can pay April’s bills easily enough.
“I’m worried about May 1 and June 1,” she said.