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Everything is different this year but this special Fall Forecast event on November. 12, 2020 attracted over 450 virtual attendees from the Chicago area and further afield, showcasing the strength of CFA Society Chicago.

Christopher Vincent, CFA, president and CEO of CFA Society Chicago kicked off the event with commentary about the value of the CFA charter underscoring its importance to our industry and our community. He then introduced Kristan Rowland, CFA, chair of CFA Society Chicago, who touched on upcoming plans within our society including a diversity and inclusion initiative. Rowland enthusiastically thanked sponsors with this year’s virtual event featuring a video with Mike Roberge, CEO of Diamond-level sponsor, MFS Investment Management. Rowland introduced Austan Goolsbee to the virtual crowd. 

Known for his humor and for being a popular professor, Goolsbee is the Robert P. Gwinn professor of Economics at the University of Chicago’s Booth School of Business. Highlights from his distinguished biography include being the former chairman of President Barack Obama’s Council of Economic Advisers and a member of the cabinet as well as the chief economist for the President’s Economic Recovery Advisor Board (chaired by Paul Volcker). An expert on business, the economy and government, Goolsbee gave us a “straight-up” outlook on the economy for both the short-term and long-term. He also gave insights into what may be permanent economic trends attributed to the COVID-19 pandemic. 

Straight-Up Outlook with Virus Economics

Goolsbee kicked-off his “straight-up” economic outlook by putting things in perspective with the sobering comment that 2020 is like nothing before, including the Great Depression. With 21 million jobs lost at the beginning of the pandemic, a burning question is if normal economic rules apply during this virus-driven recession. Can we make a comeback faster than in a normal business cycle?   Goolsbee estimates that we are only about halfway out of the hole the virus plunged us into with two significant speed bumps ahead which will be hard to avoid without rescue or relief dollars.

  1. States and cities everywhere are experiencing revenue shocks like never seen before translating into mass layoffs due to balanced budget requirements. Decreased revenues trends will continue in the absence of rescue or relief packages.
  2. Millions of small businesses will likely go into liquidation. The rescue money to date has kept them barely above water.

The economy snapped back rapidly from the initial downturn earlier this year but we are now being pulled down into more of a normal recover path. The actual unemployment due to the pandemic is hard to determine with so many small business failures on the horizon. Goolsbee emphasized that the key rule to virus economics is getting the virus under control. From studying Illinois areas under lockdown versus those that weren’t, he noted that commerce collapsed by the same amount as evidenced by a 70% drop in business visits by Illinoisans. The virus and fear of it hurt the economy, not the lockdown. Goolsbee offered a glimmer of hope for the short-term. He is optimistic that we are not far from getting the virus under control noting that Asian economies rebounded once they got the virus under control. However, he estimates that even with the vaccine, we still need 1 trillion dollars of rescue and relief stimulus to prevent permanent damage and avoid those two speed bumps. The CARES Act was more like a life vest and not stimulus.    

Are Virus-Driven Trends Here to Stay?

There has been a lot of discussion among economists whether current trends such as de-urbanization, the downfall of the services sector and low savings rates will continue longer-term. Urbanization has been a trend since 1789.  With cities offering massive attractors, Goolsbee believes that wages and productivity will continue to grow and that we will go back to in-person interactions because this is how deals get done. Services are usually non-cyclical and somewhat recession-proof but because they require high contact, they were the first to fall in this virus-induced recession. People enjoy travel, leisure and entertainment and there is a 100-plus year trend of services having increasing importance in our society. Due to this, Goolsbee believes they will rebound. Personal savings has been around 33% during the pandemic but looking back, it was 5% during the Financial Crisis, 0% in 2000 and 10% in the 1950s. Consumer spending will be a big part of the recovery and per Goolsbee, personal savings rates will return to historic trends.

Online shopping and wage inequality caused by knowledge jobs versus work carried out in person are likely to continue as permanent trends when we emerge from the pandemic. Governmental actions continue to devolve to balance sheets of businesses clearly shifting the task of providing a safety net to the private sector.  An example of this is loans given to businesses to keep them afloat early in the pandemic. This shift, a tension before the pandemic, is now more visible and will likely continue to be hashed out in political circles. 

Looking Forward to Better Days

Optimism is one way to characterize Goolsbee’s thoughts about the future. He reminded us that the innovative capacity of the U.S. is unbounded and that there has been constant growth since 1789 even after accounting for blips such as wars. A data point to prove this is looking at the level of the Dow in 1900 which was at 50. Many things have gone wrong since then but its level was at 2900 earlier this year. The presentation concluded with a brief question and answer session.

The evening concluded with attendees joining virtual breakout rooms for Alternatives, Fintech, ESG investing or LIBOR transition. Everything has been different this year, but CFA Society Chicago still remains a great place to connect with those in our industry for meaningful conversations and perspectives.

 

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