So what impact is COVID-19 having to the global economy? First and foremost, it is disrupting supply chains as manufacturing facilities have been closed in China due to quarantine. Originally, We were optimistic that supply chain disruptions would be minimal as the virus began spreading during the Chinese New Year holiday, and inventories would have been increased as the country celebrates.  These shutdowns are minimal at first, but with focus on lean and just-in-time inventory, the prolonged shutdowns begin to slowly impact the entire supply chain. The second impact is a significant decline in personal income and spending. For example, auto purchases in China declined 80% Y/Y in February as consumers were not shopping for vehicles and focused on saving money.

Now how has this translated to the U.S. The virus has entered the U.S., but we have not started to see any economic effects. Updating our recession barometer, shows that we are not near a recession, but we are also cognizant that our model may not be able to predict it with the speed of which things are moving. Last week’s employment numbers for February exceeded expectations and showed little-to-no effect. Consumer confidence remains high, and we have all seen videos of the lines at Costco and Walmart, so we know the consumer is shopping. With the ever-declining interest rates, mortgages and refinancing activity has been robust.

If this was not causing enough unrest, Russia and Saudi Arabia decided to square off in the oil markets, causing oil prices to decline significantly. Oil prices fell over 25% on March 9, the largest decline since the first Iraq war in 1991. This has caused numerous concerns about the financial stability of oil companies and the companies that support the industry, the employment numbers, the banks that provided lending, housing, and many other possible dominoes that could fall depending on the length of time for the low oil prices.