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Economic Outlook

By: Russ Colbert
Spring 2020 (Vol. 38, No. 1)

Wow! Since the last article we had the Coronavirus hit and in 30 days take out the strongest economic growth period seen in many decades. During the last several months the economic damage brought on by the virus has grown larger resulting in the shut- down of both small and large businesses. It has also had a negative effect on Educational institutions, churches, hospitals, non-profits organizations, and state and local governments. This effect on the private sector slows down funds to pay for government, schools, charitable organizations, and healthcare. To make up for the loss the U.S. Government has resorted to huge increases in government borrowing and spending to assist in this economic downfall.

We expect the unemployment rate to continue to rise for a number of months until companies can open at a higher capacity than 25%. While the economic damage is terrible, there are some good signs starting to appear. Workers who are now filing for unemployment benefits are at a smaller number than had previously filed during the past six weeks. It is still bad, but at least it is improving with help from the Payroll Protection Plan and areas of actual job creation, such as online retailing and delivery services, and more people getting back to work, offsetting some of the losses. We expect things to continue to improve and the economy to expand as we move forward into the second half of the year. Business activity is still down substantially from six months ago, but we are seeing more activity come back as we venture out. We are also seeing more people and cars on the roads, more businesses reopening, and more preparing to reopen. The airports and hotels are picking up more activity and that will continue to rise in the months ahead. Many researchers are using cell phone activity to track this improvement in the movement. This recession is a tough one, but it is not a normal recession. It should be a short one with better days ahead.

Many of the states have started to re-open. There are many states that have had a much smaller Coronavirus effect than others. The northeastern part of the country has been hit hard. Mainly New York, New Jersey, Connecticut, Rhode Island. California, Ohio, and Washington had a large number of cases earlier, but are doing much better now. Twenty-five percent of the counties in the U.S. had no Coronavirus cases. The warm weather and the continued personal awareness to take precautionary measures to keep safe will continue to help reduce the number of cases. The healthcare industry continues to make improvements daily on the treatments. I am hoping it will not be very long before we have a vaccine and completely put it behind us.

Looking forward ,we believe the economy will start to show some improvement as we move into the third and fourth quarter. We are hopeful that most of the states will be open for business by then and we will have several months behind us with a large number of businesses opened backup. The stock market always looks ahead 3 to 6 months ahead. Currently it has moved substantially off the lows of March and April. What we need to remember is that when we are invested in the stock market, we are not buying shares of the GDP. We are buying shares of companies that offer goods and services. We believe the worst news is already factored in. Investors who can get through the volatility over the next several months should see more improvement in the economy and stock market over the later part of this year and as we move into 2021.

If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.

Russ Colbert
Senior Portfolio Manager

Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.