A Closer Look:
US Economy

Data-Based Reality

By: Alan Beaulieu

What you need to know: Data informs reality and beats perception every day of the week when it comes to making the right business decisions to maximize profits.

US Real Gross Domestic Product (GDP) growth is slowing, with the exception of a 0.2–percentage point tick-up in the rate of growth based on fourth-quarter-2019 data. That is a reality based on data published by the Bureau of Economic Analysis. This is despite the voices in the public space saying that the economy is “booming.” Data informs reality and beats perception every day of the week when it comes to making the right business decisions to maximize profits. That same data-based reality can be applied to two other items – the coronavirus and US Nondefense Capital Goods New Orders (without aircraft).

There is a lot of fear about global economic growth surrounding the China-based outbreak of the coronavirus and its subsequent leakage into other parts of the world. The World Health Organization (WHO) does not rate the outbreak as a pandemic due to the modest size of the spread of the virus. That doesn’t stop the perception that there is reason to worry about the Chinese and global economies in 2020 and perhaps the long-forecasted second-half-2020 US and global economic recovery. The data strongly suggests that the economic fears are overblown, according to an analysis of the 2003 SARS pandemic.

The China-based outbreak of SARS occurred in early 2003. China notified the WHO about the spread of the virus in February 2003, and the WHO declared a global alert in March 2003. The data shows that China and the global economies were not adversely impacted in their respective trends despite the SARS-related fears at the time. The economies we are talking about here are complex, big, and not easily knocked off trend unless something truly epic occurs beyond the human tragedy of the times.

  • China’s stock market was already in decline in the second half of 2002, and the drop extended until the middle of 2003. The stock market problems predated SARS and were not a result of that outbreak. Rather, the market rebounded in late 2003 despite the early-2003 fears.
  • China’s Industrial Production Index stalled in February and March of 2003. This may have been related to SARS, but it is hard to be sure. The quarterly average stalled, but it is normal for the quarterly Production figures to dip early in the year due to seasonality. Further, the Production annual growth rate rose throughout 2003. If there was an impact on China’s Industrial Production Index, it was very mild and very short-lived.
  • World GDP accelerated through 2003.

We understand the concerns that arise during periods such as this, but the probability is that even with the reality of attempting to isolate thecoronavirus outbreak, the resulting economic impact will be microeconomic in scope. We will continue to monitor the situation and trends very closely, and, in the event it becomes necessary, consider some adjustments to our thinking/forecasts.

The economic trends are also not as dire as some other “public voices” say. Our last perception/reality reference pertains to US Nondefense Capital Goods New Orders (without aircraft), a good measure of business-to-business spending on capital goods. The data is showing that the quarterly rate-of-change is rising off a tentative October 2019 low. This rise points to a stronger business environment in the second half of 2020, as we have been forecasting. There are businesses in this space dealing with some angst at this time. The quarterly rate-of-change is providing a good data point in support of a better New Orders environment as the year progresses.

Use rate-of-change methodology for your own firm to separate perception from reality. Doing that, and tying it in with the leading indicators yousee in the Advisor™, makes it possible to know with a high degree of confidence what the future holds for your firm. That in turn gives leaders time to enact profit-enhancing plans.