Economic Outlook – Spring 2020

“A Historic Start to the Year”

As our team puts together this quarter’s economic outlook, the world is confronting an unprecedented health crisis. Our thoughts are with the individuals and families impacted, as well as the front-line health-care workers and first responders.

The typical format for this blog post is to share a few relevant economic data points and give the interpretation of how these data points fit into a broader economic narrative. Then I would explain what the department is doing to position our clients’ assets accordingly to what we view as the most likely course for the economy.

The transformation of the novel coronavirus outbreak into a global pandemic has rendered any traditional economic analysis meaningless. In an effort to slow the spread of this virus, governments around the world have issued stay-at-home orders and closed “non-essential businesses”. The effect can be described as pulling the emergency brake on the economic engine of the world. The travel, tourism, and retail sectors have been hit the hardest, but all industries have been impacted to some degree.

Any doubts about the severity of the economic ramifications were eliminated on Thursday, March 26th with the release of the initial jobless claims number. This is the number of new people filing for unemployment benefits. The 3.3 million people that filed during the week was startling – so much so that the New York Times broke the format of their cover to fully illustrate the magnitude of the increase.














The following week that number was more than double at 6.8 million.

Adding all the numbers from the last 4 weeks from April 16, around 22 million people filed for unemployment benefits. With about 162 million people currently in the labor force, that equals roughly 13.6% of our workers! By comparison, the unemployment rate in the United States on February 29 was 3.5%. You don’t need a PhD in economics to know that is a huge disruption.

While one would expect a decrease in economic activity due to lockdown conditions, the forecasts from major research providers for growth in GDP in the 2nd quarter are still shocking in scope.

Company U.S. GDP 2Q ’20 (est.)
JP Morgan -40%
Morgan Stanley -38%
Conference Board -33%
Goldman Sachs -34%


To put those numbers in perspective I have included the chart below. The depths of the Financial Crisis in ’08 saw a decline in GDP of 7.2%. The average of the above forecasts is -36% which, like the New York Times covering jobless claims, breaks the scale of the chart.







While the economic impact of this lockdown has been and will continue to be, painful for many Americans, we know that it’s necessary to stave off a worse outcome. We have seen what happened in Italy, Spain, and more recently, New York, with hospitals getting overwhelmed by patients suffering from COVID-19 symptoms. There have been multiple stories of doctors having to choose who gets a respirator and who doesn’t, as this story from the Wall Street Journal which claims a New York Health Center told its doctors to “’Think more critically’ about who gets ventilators”.

So where is the good news?

Fortunately, the government has introduced a number of programs to help people manage through this period. Unemployment restrictions have been relaxed and those filing are receiving an additional $600 per week. As of this writing, millions of Americans are receiving their stimulus checks from the government – $1,200 per person with an additional $500 for each child. There is also a small business loan program, the Paycheck Protection Program (PPP), which is largely forgivable if used to pay wages of employees and other allowable expenses, designed to help keep small businesses running during the lockdown. There are a number of other programs not mentioned and talk of further stimulus to be offered.

And the “stay at home” measures appear to be working. As of April 16, hospital cases in New York had dropped for three straight days.  We are seeing the “curve flattening” meaning slowing the spread of the disease across the country. These are good signs.

Even better signs are the headlines that Johnson & Johnson is fast-tracking a potential vaccine. While 18 months sounds like an eternity in today’s environment, these new drug and vaccine trials can normally take up to 5 years.

We also saw that Abbott Labs has created an antibody test that can give results in 5 minutes. This is important because testing for coronavirus antibodies can determine if someone has ever had it and therefore is already immune (or at least resilient, as there have been some stories of people getting sick after presumably already having had it.)

The bad news is that we still do not know how long we will need to live under this “stay at home” environment in order to stay ahead of the virus.  If people come out too soon and start interacting more, we could see a resurgence of cases.

For us, as fiduciaries charged with the stewardship of our clients’ investments, there are several questions that we are trying to find some clarity on.

How long will the lockdown continue?

How will people react once lockdown restrictions are eased? For example, even if baseball starts this summer, will they allow people in the parks?  If they allow people in the parks, will anyone even want to go?  What about travel?

How much more stimulus can the government provide? How will that offset the lack of activity?

Ultimately, our path forward will be determined by our fight against the virus itself. Recovery will hinge on continued progress towards rapid testing, viable alternative treatments, and the development of a vaccine.  Our economy will not be able to function normally if people do not feel confident that the virus is under control. If you remember Maslow’s Hierarchy of Needs from your high-school days, you know that Safety forms the base of the pyramid. People need to feel safe before they can concentrate on other activities.

The previously mentioned anti-body test may be helpful in this regard as it was just recently used in a recent study (news story here). In the first large-scale community test, 2.5 to 4% of those tested showed signs of the antibody, suggesting a much higher rate of exposure to the virus than official numbers would suggest. If more people have already had exposure and are at less risk of contracting and transmitting, it could go a long way to getting the economy moving again.

In closing, we are watching this situation closely and have actively positioned portfolios more defensively due to the uncertainty of the near to mid-term outlook. That being said, over the long-term, we are confident in the spirit and resiliency of the American economic engine. And while it may take some time to get back to full speed after pulling the emergency brake, we know we will get there. In the meantime, we encourage everyone to stay safe and hope the best for you and your families. If you have any questions about your financial situation, give us a call. We are available and eager to help.

Best wishes,

Keith J. Akre, CFA, CFP® – Vice President & Trust Officer

Opinions expressed are solely my own and do not express the views or opinions of Stillman Bank. Investments available through Stillman Trust & Wealth Management (1) are not FDIC insured (2) are not deposits, obligations, or guaranteed by the bank and (3) are subject to investment risk including possible loss of principal.