Markets and Economy
Economic Volatility in the Time of Novel Coronavirus
Virus-related volatility is worrying, but rapid price corrections are helping cushion supply shocks, equities investors are still pricing in strong future earnings and pent-up demand may help the economy rebound once COVID-19 is contained.
Key points:
- Economic disruptions from COVID-19 are currently rooted in uncertainty—some sectors may be hit hard, but the nation’s overall output is likely to remain stable.
- Virus-related volatility is worrying, but rapid price corrections are helping cushion supply shocks and equities investors are pricing in strong future earnings.
- The freefall of oil prices may be a huge stimulus for consumers, but drilling activity may slow.
- Eventual COVID-19 containment could release a wave of pent-up demand and help the economy rebound.
The COVID-19 outbreak has rattled markets worldwide—equities are whipsawing and oil prices are tumbling as the virus spreads. But the fact remains that transient uncertainty is the main culprit for this volatility, and the economy may prove resilient once the outbreak is contained.
Riding out the volatility storm: Uncertainty is causing equities and oil prices to fluctuate dramatically, but rapid price adjustments can help minimize disruptions to the real economy.
- Price adjustments can cushion economic shocks by allowing supply and demand to quickly reach a new equilibrium.
- The fallout from supply shocks was worse in past decades when the economy was more tightly regulated.
- If prices weren’t allowed to move freely, the ensuing gluts and shortages would exacerbate disruptions.
Reshuffling consumer spending: The virus threatens to disrupt economic activity in some sectors, but may boost activity in others, meaning its overall impact on aggregate production may be modest.
- The outbreak may not have as great of an effect on obligatory payments such as mortgages, car loans, insurance premiums and utilities, which make up roughly two-thirds of consumer spending.
- Consumer spending may simply shift to other sectors. For example, if restaurant revenues fall, supermarket sales could rise commensurately.
- Industries like travel and tourism may see trips deferred during the outbreak, but the eventual containment of the virus should release a wave of pent-up demand.
- Increased telecommuting should represent an economic gain as hours previously wasted in traffic are turned to productive use.
- As always, layoffs will provide the most reliable indicator of economic distress.
- In the aftermath of past pandemics, employers have been reluctant to lay off workers. They figure business will return to normal when the disruption passes.
The cheap oil factor: On March 9, oil prices fell by almost 50 percent after Russia and Saudi Arabia failed to reach an agreement on production cuts sparked by COVID-19. This development will likely help consumers and hurt producers.
- Since domestic oil production now meets about 87 percent of American demand, falling prices could generate crosscurrents for the economy, not an outright tailwind.
- Consumers stand to benefit from cheap energy that could free up $100 billion in discretionary spending over the coming year.
- Many drilling projects, however, could be halted. During the 2015 oil glut, America’s rig count plummeted as shale exploration ground to a halt.
Novel coronavirus is creating economic uncertainty, but when the outbreak subsides, the strength of the US economy should generate a rapid rebound.
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Jim Glassman, Head Economist, Commercial Banking

Jim Glassman, Head Economist, Commercial Banking
Jim Glassman is the Managing Director and Head Economist for Commercial Banking. From regulations and technology to globalization and consumer habits, Jim's insights are used by companies and industries to help them better understand the changing economy and its impact on their businesses.