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Economic Trends Post COVID-19

April 24, 2020

What economic trends can we expect following the COVID-19 and oil price black swan events? In this week's TrendsTalk, learn ITR Economics expectations for the rest of this year.

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Transcript by Rev

Brian Beaulieu:
Hello, I'm Brian Beaulieu. I'm CEO and chief economist for ITR Economics, and this is TrendsTalk. Today we're going to briefly discuss all the analysis that we've been doing and the varying trends that are going to come out of the other side of this COVID-19 black swan event that we've been all living. Right now, people are talking about the different phases for letting us out of our homes and getting back, engaged in the economy. And it's happening here, it's happening in Asia, it's happening in Europe. As far as we're concerned, that's very exciting, and frankly, because we're economists, not healthcare professionals, we think it can't happen soon enough. We've been contemplating all sorts of different scenarios, factoring in the extreme weakness in oil pricing that's evident today with oil down below $11 a barrel for WTI, and we think you should be aware that there's going to be very different recovery scenarios, depending on what part of the economy you are focused on.

For instance, if your business moves with overall GDP, adjusted for inflation, then it's likely that by the third quarter of 2021, so about a year and a half from now, you'll be made whole. We expect GDP at that time will be running about even with where we were in the fourth quarter of 2019. And that's our definition of recovery. But if you're tied more to U.S. industrial production, that's a much slower climb up because it doesn't include the service side of the economy that's going to get a faster boost. And I realize we all do that. The service sector took the brunt of the force on the way down, but that gives it more of that V-shape.

In the industrial side of it, while the rates of change may have that V-shape, the data itself is going to have a relatively broad view. So if you move with U.S. total industrial production, please know that we don't see that coming back to 2019 levels of activity until we're on the far side of 2022. So we're talking about the rest of '20, all of '21, and all of '22, and we're still not all the way back up to where we were. And that's factoring in, as best as we can, our expectations have increased onshoring or near-sourcing. The stimulative program is laid out by the Congress, President, and the Federal Reserve. This has been significant damage done to our economy.

You can call it by COVID-19 or you can call it by the government shutting down the economy because of COVID-19, it doesn't really matter at this point. It's going to take a time, take a while for us to rebuild. Likely we're going to come back faster than our European cousins are, just because of the size of the stimulative effort and the more coordinated response here in the States and the deeper pockets that Uncle Sam is willing to dive into, in terms of deficit spending. So they'll come out too, but they're going to be on the track of '22 or beyond also, like our U.S. industrial production.

And if you're tied to the oil industry, our oil industry outlook is quite bleak, and we don't think you're going to start seeing anything approaching levels of activity that you would describe as normal by recent standards until well into 2022, and even then we're still running at output levels well below where we were in 2019 or even the first quarter of 2020. That's a long hole, and the financial risk associated with that particular part of our economy are significant. And if you would like to see another major government program to help out the economy, that would be where the government should focus its next lens in terms of figuring out how it's going to salvage that part of the economy.

The damage inflicted upon that part of our economy is not because of anything we did per se, it's because there was, A, COVID-19, and then the Saudis and the Russians decided to totally disrupt the market by flooding the market with cheap oil, probably depleting their own storage at the same time. And now we have to pick up the pieces. It's a mess. It's one that keeps us going, in terms of pondering deep into the night, what's going to be going on here. COVID-19, that seems to be abating as far as we can tell, but the oil debacle, that's a long ways from being solved. We'll be talking more about that I'm sure in the weeks and the months to come. For now that remains the black swan that is giving us nightmares.

Join the recovery where you can, look for the markets that are going better than others. We're going to be putting out a webinar this Friday on that, trying to find some of those better than average markets for you to be seeking. And until then, thank you for listening to this TrendsTalk. We very much appreciate it. We appreciate you wanting to be on board with getting yourselves profitable and this economy going at the same time. This is Brian Beaulieu, CEO and chief economist for ITR Economics, see you next time.

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Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.