Robert J. Morgan
2020 has been a year of many changes and the economy certainly reflects our unusual circumstances. Recently, Robert J. Morgan, an economist with ProBank Austin, shared with us the current state of the economy and what he thinks may impact it in the coming months.
Personal consumption expenditures, which makes up 69.5% of GDP (gross domestic product) is down 4.2% from the fourth quarter of 2019. GDP is how we measure the growth of the economy. This number shows less spending by households on goods and services, reflecting the effect of the pandemic. "Certainly the services industry has been most impacted by the virus and the decreased spend in that area has slowed our overall economy," states Morgan.
There have however been a few positive side effects of the pandemic's impact. "Savings rates have increased to 14%, from 7% prior to the pandemic," says Morgan. This is a reflection of people staying home, spending less on transportation and shopping. Whether or not this trend continues after a vaccine is in place and people go back to normal remains to be seen. Likewise, manufacturing is experiencing huge growth in this time, with many companies selling down their inventories and now having to ramp back up to meet demand. The biggest barrier to growth in this industry will be the ability to find qualified workers. While unemployment is much higher than a year ago, there are people who having been laid off were collecting more in unemployment benefits plus stimulus money than they did working. This is a disincentive to go back to work. Also, those who are in high-risk categories, such as those who are over 50 or have pre-existing conditions, may be hesitant to work in a manufacturing setting. Housing is another area that's seen large growth during this time. According to Morgan, "the U.S. underbuilt new homes over the past 7 years while many chose to live in urban areas and rent. Now that more people are able to work remotely and are embracing social distancing, the demand for single-family homes has skyrocketed. That combined with current low-interest rates will continue to grow demand in this area for existing homes and new construction."
Consumer confidence plunged from 130 to 81 in April with the shutting down of many businesses and industries due to the pandemic. While it rebounded to 101 last month, this number needs to continue to rise for expenditures to increase and positively affect the economy. The growth in cases of COVID will have a large impact on this number.
Capital spending is another area that affects the economy. Morgan states, "with new orders up and deliveries down slightly there's a disruption in the supply chain we haven't seen. Businesses will need to find warehousing to store product as just in time models will probably not be feasible. This will result in increased capital spending, which is a shift. Recently businesses had been stockpiling cash rather than investing back into their companies."
Another change reflected in the economy was the increase in the trade deficit during the third quarter. "We had seen narrowing in the first 2 quarters of 2020, but it grew significantly recently due to demand for imports because of a lack of available product in the U.S. to meet consumer demand," explains Morgan. As manufacturing gets back up to speed, the hope is that the deficit will begin to decrease again.
When asked about the economy for the upcoming year, Morgan points out that it all really hinges on the effectiveness of a vaccine on the pandemic and the result of getting people comfortable going to work and in public again. "Should cases continue at their current rate, or accelerate, and we have to shut down, the economy will not accelerate," states Morgan. He looks for interest rates to remain low over the next two years and feels the Georgia senate run-offs, which will determine which party has control of the US Senate will play a huge part in whether or not corporate and personal taxes increase. "That will most certainly have an impact on our economy."