A recent study by ITR Economics predicts a recovery trend for third quarter.
The revised forecasts show a severe drop in economic activity through the second quarter of 2020 due to the coronavirus pandemic. As businesses, individuals, and lawmakers alike respond to health threats and economic risks, history gives us perspective on what we can expect in the coming year.
WHAT WE CAN LEARN FROM HISTORY
As the death toll rises above 146,000 and more than 16 million U.S. workers needing unemployment insurance, the magnitude of the decline in GDP is not surprising. Recent studies predict that GDP in the second quarter will be down 2.1% from the first quarter. This level of decline has occurred only three times in post-WWII history: 1958, 1980, and 2008.
Although the current decline started steeper than the 2008–2009 Great Recession, strategists predict we are facing a much shorter period of decline. Looking back on the Great Recession, the GDP declined a total of -4.0% over 18-months. Only two fiscal quarters of shrinking GDP in the face of a global stand-still may seem optimistic but a lot has changed in the last decade.
WHY THE OPTIMISTIC RECOVERY TREND
Although the United States has been slow to respond to the global crisis, the precedents set in the past and the actions taken in recent months suggest a promising recovery trend.
Here’s why:
1. Five leading indicators maintained rising trends through March
a. ITR Leading Indicator™
b. ITR Consumer Activity Leading Indicator™
c. Housing Starts
d. US ISM PMI (Purchasing Managers Index)
e. Johnson Redbook Index for Retail Sales
2. The scope and timing of the fiscal stimulus package and what that meant in 2009
3. The scope and timing of the monetary stimulus and what that meant in 2009 when combined with the fiscal stimulus
4. E-commerce and internet/remote working are keeping the economy on life support
5. A possible resolution to the collapsed level of oil prices
6. The loose definition of “essential businesses”
7. Health models suggesting that the worst of the pandemic could be over by the end of 2Q20
PACIFIC NORTHWEST – PLANNING FOR THE FUTURE
As the West Coast prepares to re-open economies here is what we can expect the approach to focus on:
- Protecting vulnerable populations.
- Supporting the healthcare industry.
- Mitigating the indirect health impacts of the pandemic on disadvantaged communities.
- Implementing a system of testing and tracking to protect the general public.
As businesses use the economic support from the CARES Act to ramp back up to normal capacity in the third quarter all eyes will be on local health officials. The fear of a second wave of shutdowns may threaten the predicted recovery pattern.
A DISCUSSION FOR BUSINESS LEADERS
As business leaders connect to discuss the challenges and successes of this time consider these questions:
- Will a normal summer shutdown still occur if that is part of your seasonal cycle?
- What is the lead time likely to be regarding the capital equipment you were contemplating ordering before the black swans arrived?
- Europe is likely to be weaker than the US coming out of this downturn; how might this impact you? Favorably or unfavorably?
- Have you had your eye on an acquisition (home, business, land)? Buying when others are fearful may present an unusual opportunity.
- Which employees will you not be so eager to have come back into your building, based on your needs and their capabilities?
- How will it impact your business’s sales/marketing/product development if the consumer is much more risk-conscious going forward? It is likely the risk apathy of 2019 has evaporated.
- How secure is your supply chain? Are you concerned about anyone’s financial condition?
- Have you applied for money from the CARES Act? The government seems to have done their best to make it an easy process.
- Have you communicated to your long-term clients regarding your financial health and ability to meet their needs?
- Are you maintaining a helpful communication stream to furloughed employees?
For more opportunities to discuss economic trends and challenges in the Silicon Forest please connect with our team in Portland, Oregon. Our virtual events for technology leaders in the area focus on the importance of human connection and support – especially during these challenging circumstances.
