Marc Schaffer (Economics) of the Center for Business & Economic Analysis at St. Norbert, along with experts from Breakthrough and Wipfli Financial, presented a live webinar looking at the economic impact of COVID-19.

CBEA Charts Rocky Economy

Unprecedented. Volatile. Unpredictable.

Those three words sum up the current state of the economy as it deals with the effects of COVID-19, according to three experts who shared their thoughts during an April 30 live webinar, “The Economic Impact of COVID-19,” offered by St. Norbert College’s Center for Business & Economic Analysis.

Looking at economic data, including Gross Domestic Product (GDP) and unemployment, Marc Schaffer (Economics) said more bad news is coming.

“Economic data lags so we can expect the numbers to get much worse before there’s any sign of improvement,” he said. “There’s so much uncertainty right now. It’s hard to get a handle of where things are going.”

According to the advanced GDP estimates for the first quarter of 2020, the GDP declined 4.8 percent. For comparison, during the last quarter of 2019, GDP grew 2.1 percent.

“We have to remember things were just starting to hit in March with the Safer at Home measures and closures. The GDP and unemployment numbers for the second quarter will pop,” Schaffer said.

When looking at the GDP numbers, he said “what really jumps out is the decline in consumption.”

Consumers spent dramatically less on services and durable goods as people delayed purchases on big-ticket items like cars and appliances. Non-durable goods, such as groceries and paper products, did well as consumers stocked up.

“The Safer at Home orders are driving down the GDP, but if they were lifted tomorrow, it doesn’t mean consumers will get out there and start spending again,” Schaffer said. “Even before the official Safer at Home orders were put in place, consumer spending was beginning to slide because people didn’t feel safe. I don’t think consumer spending will return to what it was until the health side, whether it’s a vaccine or herd immunity, has been figured out.”

Economic data may lag, but the stock market provides real-time numbers – even if we don’t like them, said Rafia Hasan, chief investment officer with Wipfli Financial. While the U.S. stock market was “truly a roller coaster ride during March,” she said markets have recently become more stable and investors need to maintain their perspective going forward.

“Everyone asks, ‘How long will this poor market last?’ No one knows the answer, but I can say that data shows bull markets last longer and have greater returns, which is why I tell investors to hold on right now,” Hassan said. “The market will get better. I don’t have a crystal ball, but markets reward disciplined investors.”

In fixed-income markets, Hassan said the yield curve was down across the board, which can signal a recession.

Hasan said the stock market is a leading indicator of what will happen in the economy so as the pandemic begins to subside, stocks will improve. “You’ll notice definite improvements in the market before you see it in the economic numbers.”

Like the equities market, the oil market also has been hit hard by the effects of the pandemic. The oil market is in unparalleled territory as demand dramatically dropped as the global economy slowed and more people stayed home, said Matt Muenster ’09, a senior manager of applied knowledge at Breakthrough in Green Bay.

At one point, the price of oil was in negative territory, which meant suppliers paid buyers to take the oil off their hands. “That’s truly unprecedented,” he said.

“Energy markets are out of balance,” Muenster said. “In the near term, that means lower prices. In the long-term, you have to wonder if other disruptions are coming. Will some companies be forced to declare bankruptcy? Expect prices to be volatile through the rest of the year.”

Muenster said Breakthrough’s data on the movement of products and raw materials from place to place shows how COVID-19 disrupted supply chains and the energy markets that move those goods.

The value from the largest ports in the U.S. was 30 percent below normal in March, which was a result of the shuttered factories in China. “The port value will continue to be 15 to 20 percent below normal this summer as we move from a supply-side shock to a demand-side shock,” said Muenster, adding there is now less demand for products in the United States even though Chinese factories are back online.

One lingering economic fallout from COVID-19 will be its impact on U.S. fiscal policy, Schaffer said. Heading into 2020, the government had a $1.4 trillion deficit, and as of the end of April, that number increased to $3.7 trillion due to the funds Congress spent to fight COVID-19’s economic impact.

“These numbers are quite startling if you’re concerned about debt,” he said. “We weren’t on the best fiscal footing coming into this crisis and the question now becomes how much more will we have to pay in interest to get everything paid off?”

May 8, 2020