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Sunday, June 7, 2020

Disney and the Economy: Uncertainty and a Call for Walt’s Realistic Optimism

by Ray Keating
June 7, 2020

The current economy serves up another call for Walt Disney’s realistic optimism – at least, over the longer haul.

My favorite quote from Walt (as I’ve written before) is: “I always like to look on the optimistic side of life, but I am realistic enough to know that life is a complex matter.” Indeed, while many people emphasize Walt as a dreamer – which he was – when you look at what he accomplished in life, Walt Disney was a realistic optimist. 

I try to be the same way. Some might scratch their heads, but it was a realistic optimism that led me to becoming an economist. How does that work – isn’t economics the dismal science? Actually, no (see my Free Enterprise in Three Minutes Podcast episode titled “Economics? Not Dismal, But Rather Exciting.”) To sum up very quickly, seeing the astounding results of the free enterprise system (in terms of wealth creation, income and job growth, alleviation of poverty, improved quality of life, and so on) should fuel optimism. Walt Disney, again, shared optimism in this area, as he once expressed in talking about his plans for Walt Disney World: “But if we can bring together the technical know-how of American industry and the creative imagination of the Disney organization – I’m confident we can create right here in Disney World a showcase to the world of the American free enterprise system.”

Meanwhile understanding how free enterprise works provides grounding in realism, given, for example, wrongheaded governmental policies that can undercut free enterprise. Of course, a pandemic combined with governmental decisions to shut down large parts of our economy to try to limit the spread of and deaths related to COVID-19 makes for a recipe meant to uncut free-enterprise optimism.

Few have been immune from the negative economic fallout. Indeed, it has been breathtaking. And The Walt Disney Company, and its shareholders, employees and customers certainly have been hit.

Consider, for example, that Disney’s stock price had reached a high of $151.64 on November 26, 2019, and then it traveled on a relatively slow downward path to $140.37 on February 19, 2020. But then the COVID-19 news fully walloped Disney and the market in general. By March 20, the Disney stock price had fallen to $85.76. Uncertainty became the rule of the day in terms of the coronavirus, its health and economic impact, and the governmental policies imposed in response. 

But since that March 20 recent low, Disney’s share price has risen, closing at $124.82 on Friday, June 5. Investors started to gain more information, and begin the process of looking beyond the immediate crisis.

On Disney specifics, back on March 18 (“Don’t Expect Disney Parks To Open Anytime Soon”), DisneyBizJournal.com noted that the economy already was in recession, and answered the unmoored optimists by pointing out that expecting Disney to reopen their domestic parks before “mid-May or even June” was, well, unrealistic. And on May 27, Disney announced the start of phased reopenings for Magic Kingdom and Animal Kingdom starting on July 11, and EPCOT and Hollywood Studios on July 15. And we still have no word from Disney on a reopening date for Disneyland in California.

Just like other businesses, Disney has been dealing with the two overarching factors that still contain significant degrees of uncertainty – the coronavirus and the state of the economy.

On the COVID-19 front, for example, the John Hopkins Coronavirus Resource Center reported on June 7 that total coronavirus deaths in the U.S. have hit 110,037. Additionally, coronavirus cases are on the rise in Florida. Yesterday (June 6), TCPalm.com reported:

“There were 1,270 new cases of COVID-19 announced by the Florida Department of Health Saturday morning, the fourth day of four-digit increases. Thursday's report of 1,419 new cases was the largest single-day increase of confirmed COVID-19 cases since the pandemic began. There are now 62,758 confirmed COVID-19 cases in the state. The number of reported deaths increased to 2,688, an increase of 28 since Friday.”

As for the economy, the news, as expected, has been grim, according to a variety of government reports over the past week or so. For example, trade from February to April plunged, with U.S. exports down by 28.6 percent and imports by 18.6 percent. Over the same period, U.S. wages and salaries declined by 12.7 percent, and proprietors’ income (i.e., small business sole proprietors and partnerships) plummeted by 19.5 percent. During the first quarter of this year, real GDP (gross domestic product) plunged by 5 percent – the second largest decline over the past 38 years. 

For good measure, while assorted people – including market investors – were excited about the employment report for May (released on Friday, June 5) showing a gain of 2.5 million to 3.8 million jobs, that must be put in context of having lost more than 25 million jobs from February to April. In addition, the May data are subject to classification errors, and therefore, the unemployment rate actually was “about 3 percentage points higher than reported,” according to the U.S. Bureau of Labor Statistics. That’s roughly an additional 4.7 million unemployed people, on top of the 21 million reported for May.

The question remains: When will the recovery start, and what will it look like? Little reason exists to bet on the U.S. economy quickly getting back to where it was before – a so-called V-shaped recovery – and then getting about the business of expansion. However, barring a reacceleration in pandemic challenges and anti-growth economic policymaking (arguably the biggest threat down the road), the U.S. economy will get back on a growth path, eventually climbing back to where we were in terms of jobs and output prior to the pandemic, and then moving beyond. It’s not a question of “if,” but it’s definitely a question of “when.”

For Disney, therefore, uncertainty will persist across most of its portfolio of businesses, including theme parks, hotels and restaurants; movies; and cruise lines. So, yes, there remains a reason why the Disney stock price, while recovering some recently, still has not returned to where it was in late November.

Once again, we need to consider Walt Disney’s quote – “I always like to look on the optimistic side of life, but I am realistic enough to know that life is a complex matter.” It’s as if Walt is reaching out from the past to give us some sage advice for today. 


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Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of The Disney Planner 2020: The TO DO List Solution (now available at a deep discount) and the Pastor Stephen Grant novels. He can be contacted at  raykeating@keatingreports.com.

Get the paperback or Kindle edition of Ray Keating’s new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York.

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