January-February 2021

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18 PalletCentral • January-February 2021 ECONOMY By Lynn Michaelis I n "Uncharted Economic Waters," my mid-year economic update in the May-June issue, the economic outlook was clear that the economy was crashing due to the severe restrictions put in place to curtail the spread of COVID-19. Most economic analysts were estimating a drop of 25-40 percent in Real Gross Domestic Product (GDP) – the best measure of overall economic activity. Real GDP did fall at a 31 percent annualized rate (AR) during the quarter. Industrial Production (IP) which is the key driver for pallet demand, fell at a whopping 48 percent AR. Also, it was still unclear how big the stimulus package by the Federal government might be. Nor did we know how quickly the state and local governments would ease restrictions. Rising unemployment and growing fears about the future of the economy, also led consumers to cut purchases aggressively, especially on services such as travel and eating out. Finally, we had no idea how bad the spread of COVID-19 was going to be or how long it would take to get it under control. The Surge, but not Sustainable Because of the very large epidemic relief package (over $2 trillion), employment levels were stabilized, and consumer income was bolstered by supplemental unemployment benefits. Many states also reduced or eliminated restrictions by June or July. These factors led to a strong rebound in consumer spending, especially on cars, clothing and housing. Real GDP rebounded at a 33 percent AR. The rebound in the sales of manufactured goods, both durables and non-durables, boosted IP as well. Durables, primarily because of very strong auto sales, shot up at a whopping 95 percent AR. As seen in Figure 1, IP is still below levels seen in the last half of 2019, but are way above the low point hit in the 2nd quarter. But the surge in activity, in part driven by election posturing, has come at a very high cost. First, the COVID-19 virus has not been contained yet. With infections surging again, with over 300,000 deaths from the virus and with hospitals again facing overload, states and local governments are re-imposing restrictions to curtail the spread. At this point, it is hard to estimate how big the impact of these restrictions will be on the first quarter levels of economic activity. Second, the federal government has not been able to agree on the nature or size of the next relief package. State and local governments do not have the financial capacity to help much more than they have done already. In fact, without the help of the federal government, they will be forced to cut spending While the economy is rebounding from COVID fallouts, the future brings larger issues from the bailouts. RECOVERING THE

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