8 reasons to remain positive about US economy

The Robot Report

US economy

I’d like to offer some positive news in the midst of the dire outlook that’s been the regular diet of late on news stations. Last week, we hosted a webinar with renowned economist Alan Beaulieu of ITR Economics that examined what the COVID-19 crisis means for the economy over the next few months and years. If you missed the presentation, it is available on-demand here.

I’ve heard Beaulieu speak many times over the past few decades, and he’s always a voice of reason and logic. Beaulieu’s message was one of relative optimism. He said the U.S. industrial economy will rebound relatively quickly, even assuming that most of the country remains in stay-at-home mode through June — which is currently longer than state governments are anticipating.

He expects a volatile recovery, with the U.S. GDP reaching a bottom in June 2020, but then a peak in June 2021 that will be slightly higher than the last peak. Beaulieu said most leading macroeconomic indicators are still positive and in rise mode — that economic recovery is likely in the foreseeable future, and “we will be at record high levels in the economy here in the U.S. before too, too long.”

Here are eight takeaways from Beaulieu’s presentation:

1. ‘Mammoth amount’ of stimulus money will help

The Paycheck Protection Program money is getting out there. The politicians approached the target economy in a very reasonable fashion, providing some inexpensive loans, a large amount of which will be forgiven, as well as money to individuals so they can continue to move forward. In the 2008-2009 stimulus, it came out piecemeal — politicians dragged it out.

For this iteration, a record setting $2 trillion is being spent, something we will be talking about for a very long time. Even if you were to think about inflation and growth in the economy, this is a mammoth amount of money coming into the economy to the rescue, and it will help. It will do good things.

2. Unemployment rate won’t reach double digits

We’re going to be facing a pretty tight labor market in the future. For right now, manufacturers should try to keep the best and easily trainable, people. The unemployment rate is not going to go to double digits, according to the ITR forecast. It will be above the traditional full employment and it will be quite a bit above what we have grown accustomed to in this country. But it is not going to be the dire numbers you’ve been hearing as we go forward.

3. GDP will peak in June 2021

The rate of growth and GDP had been slowing since the middle of 2018. As it was slowing down, most people didn’t even recognize that was happening. Now, it is falling off a cliff, and it will be painful. It’s going to go way too low in June 2020 at approximately minus 2.4% — and then it is going to move up. The top will come in June 2021 at a peak of 3.6%. ITR is saying the economy is going to go from a contraction at 2.4% and then four quarters later, it’s drawing at 3.6%. People will benefit from that and feel good about that.

Alan Beaulieu

4. Forecasted 2022-23 recession no longer expected

Pre-COVID, it was expected that there would be a recession in 2022-2023. That has now been removed from the forecast; the GDP line has the economy slowing down from June 2021 into 2022. But it won’t be a recession because it never reaches a zero line, which represents 0% growth.

5. A resurgence in ‘near-sourcing’

Look for firms that have been sourcing from overseas to be ready to switch back to the U.S. ITR thinks that’s one of the things that will happen as a result of the crisis — that there will be a resurgence in “near-sourcing,” not necessarily only in the U.S. but in Canada and Mexico, as well.

6. Be patient, and you’ll be all right

On the stock market, ITR looked at 11 precedents. When the market bounces back, it tends to rebound in those 11 to 26 months, from 56.5% to 85.5%. Given that the market is off (as of 3/23) 33% from the February 2020 high, if we come back 56.5%, we are made whole. If we can go back to the high side, 85.5%, we’re making some money in a year or two. Beaulieu said that if you want it in a couple months, it’s not likely to happen. “But if you have some patience, you’re going to be all right. Your retirement is not likely to be ruined unless you’re retiring tomorrow.”

7. China is waiting for orders

If you’re sourcing from China, it’s waiting for your order. The problem now is that it’s waiting for orders from the U.S. and the E.U., but it needs raw materials from the E.U. and from the U.S. The demand it has and the demand it is waiting for from us are hurting or slowing the process down. China has its own internal pent-up demand, but consumer demand is not nearly as large in China as it is in U.S.

8. Don’t forget about marketing

Companies need to focus on marketing now to keep their name out there. Beaulieu said product and name recognition has to go on, or else when the crisis is over, they’re going to be forgotten.

“I firmly believe that some level of marketing has to go on, and now’s a good time to be designing products for the future. As you’re designing products for the future, marketing has to be on your team. That’s part of their job, too. We often think of them as the backend, having to do with keeping our name out there and making sure that we understand what the customer wants. They need to be on the front end, helping us design what the customer wants and knowing what they’re thinking so that we can be there.”

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