By Brian Beaulieu on Mar 3, 2020 11:15:00 AM
The COVID-19 outbreak is clearly foremost in the minds of many of our clients and people in general. We are discussing it with our clients, and others, as a means to clear the way for a discussion about economics. We are not MDs at ITR Economics, but we know stats and history. Both are important and indicate that COVID-19 is unlikely a plague about to be let loose in the US, given the forewarning we (unlike the Chinese) have had, the status of our health care system in the US, and the statistics associated with COVID-19 specifically. Given the non-plague status of the outbreak, and acknowledging that there is hysteria in many circles, it is probable that US consumers will perform as always: they will consume. We will watch this very closely. We will alert you if this changes.
The correction in the stock market was disconcerting, but we think these fluctuations represent buying opportunities. There is time to pause here and make sure the market stabilizes before acting. However, that is the direction we think investors should be leaning. We are also watching commodity prices, like oil, very closely as a “tell.” But our current assessment is that the economy is larger than all of this. The leading indicators in the next several weeks and months will inform considerably. Thankfully, our children seem relatively safe, and life goes on. So, let’s plan for our businesses and maximizing profits with the assumption that rational behavior and economics will rule the day.
The key issues in China appear to be logistics and getting people back to work in their factories following the new year holiday. I am confident the Chinese will overcome these issues, but it may take one to two quarters. Expect supply chain disruptions, but expect them to be relieved in 2H20. Demand isn’t going to go away, as the US consumer will continue to consume.
In the longer run, layered on top of tariffs and politics, expect this black swan event to hasten the shift away from China (and Asia in general) as a supply source and expect to see more nearshoring going forward.
While they say change is a constant, the pace at which it occurs is not. Assess and seize the opportunities.
Looking for more information?
Check out our webinar, "Probable Impact of COVID-19 on ITR Economics’ Outlook" with Brian Beaulieu.