Coronavirus Affect On The Markets, Economies & Commerce – Global Commerce

Global trade has been hindered by U.S. China trade disputes for the past two years, but the virus outbreak has nearly stalled all trade between China and its trading partners.

Production delays resulting from the virus are expected to affect company earnings across a host of various industries. The disruption of established supply chains has created havoc for companies trying to maintain inventory levels to meet demand.

Economic growth estimates were revised downward by the World Health Organization, World Bank, and International Monetary Fund. The concern is how deeply the spread of the outbreak will affect local economies worldwide. Oil markets have reacted negatively as the world’s largest importer of oil, China, is now expected to reduce consumption. Other commodities related to manufacturing and production also fell as demand pulled back and factories shut down across China.

Technology products and the travel industry have thus far been impacted the most by the virus spread. Nearly every technology-related product has components sourced out of China, or manufactured entirely within the country. The inability for companies to cease production and not be able to meet demand may eventually translate into reduced revenue and earnings.

Several analysts have already slashed earnings estimates for many companies in various sectors, anticipating an extended period of time before companies catch up on inventory and demand.

Some international and U.S. companies are considering a transition of a portion of their manufacturing and operations to other countries. Emerging market economies are expected to benefit from companies leaving China for manufacturing and production locations elsewhere. (Sources: WHO, World Bank, IMF).

Past Pandemics & What Came Of Them – Health Overview

Over the decades, pandemics have evolved and lasted for varying periods of time, yet always culminating with the containment and/or elimination of a virus. Should history repeat itself, a vaccine will eventually emerge to combat the COVID-19 virus, thus alleviating the threat of further immediate contamination.

Even though scientists have not identified how to stop a virus outbreak before it starts, advancements in medical technology over the past 17 years have drastically reduced the time it takes to develop and implement a vaccine after a new virus emerges.

The current coronavirus outbreak has been preceded by two similar outbreaks since 2003, Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS). SARs originated out of China in 2002, spread worldwide and was contained within a few months. The World Health Organization (WHO) tracks deaths related to pandemics globally. The organization found that the SARs virus resulted in 774 deaths in 17 countries. MERs, also known as the camel flu, resulted in 862 deaths.

Joint efforts among international governments and nonprofit research entities have allowed extended research on emerging infectious diseases worldwide. Several groups and scientists from various countries are already underway trying to develop a vaccine for COVID-19. (Sources: The National Center for Biotechnology Information, WHO).

Coronavirus Affect On The Markets, Economies & Commerce – Global Commerce

Global trade has been hindered by U.S. China trade disputes for the past two years, but the virus outbreak has nearly stalled all trade between China and its trading partners.

Production delays resulting from the virus are expected to affect company earnings across a host of various industries. The disruption of established supply chains has created havoc for companies trying to maintain inventory levels to meet demand.

Economic growth estimates were revised downward by the World Health Organization, World Bank, and International Monetary Fund. The concern is how deeply the spread of the outbreak will affect local economies worldwide.

Oil markets have reacted negatively as the world’s largest importer of oil, China, is now expected to reduce consumption. Other commodities related to manufacturing and production also fell as demand pulled back and factories shut down across China.

Technology products and the travel industry have thus far been impacted the most by the virus spread. Nearly every technology-related product has components sourced out of China, or manufactured entirely within the country. The inability for companies to cease production and not be able to meet demand may eventually translate into reduced revenue and earnings.

Several analysts have already slashed earnings estimates for many companies in various sectors, anticipating an extended period of time before companies catch up on inventory and demand.

Some international and U.S. companies are considering a transition of a portion of their manufacturing and operations to other countries. Emerging market economies are expected to benefit from companies leaving China for manufacturing and production locations elsewhere. (Sources: WHO, World Bank, IMF).

Past Pandemics & What Came Of Them – Health Overview

Over the decades, pandemics have evolved and lasted for varying periods of time, yet always culminating with the containment and/or elimination of a virus. Should history repeat itself, a vaccine will eventually emerge to combat the COVID-19 virus, thus alleviating the threat of further immediate contamination.

Even though scientists have not identified how to stop a virus outbreak before it starts, advancements in medical technology over the past 17 years have drastically reduced the time it takes to develop and implement a vaccine after a new virus emerges.

The current coronavirus outbreak has been preceded by two similar outbreaks since 2003, Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS). SARs originated out of China in 2002, spread worldwide and was contained within a few months. The World Health Organization (WHO) tracks deaths related to pandemics globally. The organization found that the SARs virus resulted in 774 deaths in 17 countries. MERs, also known as the camel flu, resulted in 862 deaths.

Joint efforts among international governments and nonprofit research entities have allowed extended research on emerging infectious diseases worldwide. Several groups and scientists from various countries are already underway trying to develop a vaccine for COVID-19. (Sources: The National Center for Biotechnology Information, WHO).

Consumer Debt Surpasses $14 Trillion – Consumer Dynamics

As the economy has grown, so has household debt. Data tracked by the Federal Reserve shows that debt held by U.S. households rose to over $14 trillion in the fourth quarter of 2019, the highest level ever. Mortgage debt rose as a continued low-rate environment fostered refinances and new loans at near-record low interest rates.

According to data from the Federal Reserve Bank of New York, total household debt at $14 trillion now surpasses debt levels Americans had in 2008, when total consumer debt reached a record high of $12.68 trillion.

The Fed tracks household debt by categories such as mortgage, student, credit cards, home equity loans, and auto loans. Over the decades, the most consistent and significant amount of household debt has been mortgages. Home equity loans, or HELOCs, actually fell in 2019.

The recent increase in total overall debt is primarily attributable to a steady rise in both student and auto loans. Recent Federal Reserve data shows that these two loan types are primarily held by younger consumers. The concern is that the difficulty of obtaining mortgage loans has led younger consumers to take out student and auto loans instead. (Sources: Federal Reserve Bank of New York).

U.S. Household Size Shrinks – Demographics

Family size is shrinking in the U.S., with only 2.52 members per household on average in 2019, making it the smallest size ever in the country’s history. Historical data tracked by the U.S. Census Bureau showed an average family size of 5 in 1880, double by today’s standards. The decline in family size is believed to be attributable to various economic and social changes over the decades.

Roughly 63% of households in the U.S. consist of two or fewer family members. The Census Bureau also tracks family size by state. Utah has the largest household size at 3.12 family members, while Maine has the lowest at 2.28 members.

Smaller households materialized over the past 60 years, with one-person households accounting for 28.4% of the U.S. total in 2019, up from 13.1% in 1960. Households of four or more decreased from 40.2% in 1960 to 22.1% in 2019, nearly dropping in half. (Sources: U.S. Census Bureau, Historical Statistics of the United States).

Americans Saving More – Consumer Finance

The most recent data from the Federal Reserve identified an increase in the savings rate to 7.7% of disposable personal income as of December 2019. Some economists view this increase as a possible pause in economic growth until consumers feel more confident about spending.

The Federal Reserve defines the personal savings rate as a percentage of disposable personal income (DPI), frequently referred to as “the personal saving rate,” and is calculated as the ratio of personal saving to DPI. Personal saving is equal to personal income less personal outlays and personal taxes.

Historically, Americans tend to save more as economic times become more difficult and tend to spend during prosperous periods. Past slow downs such as in the mid-1970s and the early 1980s saw an increase in the savings rate, a barometer of consumer sentiment. The expansion during the mid-to-late 1990s saw a gradual drop in savings, as consumers spent more confidently as their incomes rose. (Sources: https://fred.stlouisfed.org/series/PSAVERT).

Sudden Drop In Mortgage Rates Spurs Housing Buffer – Housing Market Update

The abrupt drop in interest rates has brought about a boost to the housing market in the form of lower mortgage rates. The rate for a conforming 30-year loan fell to 3.45% at the end of February, nearly a full percentage point from a year earlier.

Falling interest rates have prompted an increase in mortgage activity as the cost to borrow for homebuyers has become less expensive. Mortgage rates fell in late February approaching the lows last seen in 2012, when the rate for a conforming 30-year loan was 3.37% in October 2012.

The challenge for many homebuyers has been rising home prices and affordability throughout the country. Slow rising wages and stagnant incomes have, for the most part, not kept up with rising home prices. Even though mortgage rates have dropped, housing prices are still elevated to the levels that force many to wait or rent until housing prices drop.

Data tracked by the Federal Reserve Bank of St. Louis and Freddie Mac reveal that even as mortgage rates fell since the beginning of the year, affordability still declined. Affordability is the ability of a homebuyer to purchase a home and pay for all related expenses with an existing income.

Mortgages accounted for two-thirds of the $14 trillion in U.S. household debt in the last quarter of 2019. Because they are typically paid off over decades, mortgage rates tend to be correlated with 10-year Treasury bond yields rather than with the short-term rates controlled by the Federal Reserve. (Sources: Federal Reserve Bank of St. Louis, Freddie Mac).