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12 PalletCentral • May-June 2020 palletcentral.com EC NOMIC UNCHARTED I n my economic report for the January/ February PalletCentral, it looked as if 2020 was going to be another modest growth year for the U.S. economy. There was a significant disconnect between the growth in the overall economy (measured by Gross Domestic Product or GDP) and the manufacturing sector (as measured by Industrial Production or IP) however. It appeared to be one of those structural changes in the economy that can create a challenge in forecasting what is going to happen in specific sectors of the economy. The emergence of the global pandemic due to the coronavirus became the very BIG structural change and it has absolutely no historical precedent. Although there are some parallels to the Spanish Flu of 1918-19, there was not a national policy response to curtail the spread of the virus given the situation at the end of World War I. Eventually 17-50 million people died from that epidemic. Today, we have better science to minimize as best as possible the resulting widespread tragedy. So, we are truly in uncharted waters. Since scientists are still searching for a cure for the virus, and a vaccine is at least 12-18 months away, we are just going have to learn to live with the uncertainties potential outbreaks can create. The extremely draconian policy measures taken to slow the spread of the disease appear to have been relatively successful. Yet, that success has come at a very high and risky economic cost. Recent Events Are Downright Scary! The U.S. economy has never taken a nosedive like this. Unlike the Great Depression of the 1930s, this decline in economic activity and the surge in unemployment happened in the matter of two months, not years. The cause was not due to faulty economic policies or excesses in the economy. Rather it was due to policies focused on serious health concerns. This is not news to you, but let's review what we just experienced. The government just released the estimate for overall growth in the first quarter. The numbers are shown in the table (at right). Overall economic growth (GDP) fell by 6 percent, primarily because of the sharp drop in March. Domestic segments declined the most. Consumer spending and business investment led the way. The U.S. trade deficit fell sharply over the last year, in part due to a faster decline in imports. Thus, the decline in Net Exports actually helped the overall growth number. Residential (housing starts) had a very strong first quarter, before restrictions put building activity on hold. But the first quarter information is not a very useful guide for what is happening now or will happen Adrift without any reliable navigational data makes for a challenging journey. iStockphoto.com/Sigit Mulyo Utomo & Max2611 ECONOMY By Lynn Michaelis