The often-used saying “what a difference a year makes” really takes on a new meaning these days, especially when taking into account just how, umm, unusual, the last year has been.
Unusual is just one word, to describe the events of the last year. Other candidates could include: nervous, fearful, uncertain, angry, confused, and many others. But with more and more people getting their COVID-19 vaccine shots these days, the lexicon is slowly changing to words like: encouraging, optimistic, hopeful, positivity, and many others as well.
And that comes with good reason, especially when looking at some recent data points that squarely fall into the positive, or encouraging, classification.
One data point that is hard to ignore is the 2021 GDP forecast issued this week by IHS Markit. Before we get to the firm’s forecast, let’s take a look back at the 2020 GDP reading of -2.3%, a $500.6 billion decrease, to $20.93 trillion. By comparison, 2019 GDP rose 4% annually.
Of course, those two years are as different as could be. Mix in a 2020 global pandemic that threw economies of all sizes—and in all regions—into complete disarray and you quickly see that. Of course, we all saw and experienced it firsthand, too. But now that there is one full quarter in the 2021 books, it is time for some cautious optimism.
That was made clear with the 2021 GDP forecast issued by IHS, which calls for a 6.2% reading. Pandemic-related issues aside, that is a number that really stands out, right?
IHS Markit Chief U.S. Economist and Co-Head U.S. Economics Joel Prakken commented in a research note that this forecast is based on myriad factors.
“The acceleration in the COVID-19 vaccine rollout, strong data on consumer spending and the relaxation of COVID-19 containment measures by many states led to an upward revision of our forecast of GDP growth for 2021 from 5.7% to 6.2%, and for 2022 from 4.1% to 4.3%,” wrote Prakken. “We expect this growth to push GDP past its previous peak by the middle of this year and eliminate the output gap in 2022. The previous peak of employment will be regained in late 2022, and the unemployment rate is expected to decline to 3.5% by mid-2023.”
That is pretty encouraging, and it supports the ongoing evidence pointing to an improving economic, and, by extension, logistics outlook, too. But, no, things are not really there yet, even though there are reasons to believe things are heading in the right direction.
Recent data from the Institute for Supply Management (ISM), relating to the manufacturing and services economies, for the month of March bear that out, too. You can click on the links for each respective story and data set, but, on a top level, many of the causes for concern cited by the ISM are very much in line with those cited by IHS Markit’s Prakken, in the form of the pace of the vaccine rollout, strong consumer spending, and other things too, like the re-opening of businesses in certain regions and industries.
On the manufacturing side, Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, told LM that manufacturing has been setting a lot of records over the last 12 months, but with the caveat that those records had more to do with rate of change, the definition of a V-shaped recovery, the collapse in April and May 2020, and the pullout in July and August 2020.
“This [data for March] is an absolute positive record and is the highest number since the Regan era,” he said. “Demand was a big driver, with new orders at their highest level since January 2004. And March was a month of transition from a supplier-restricted growth profile that was, in some respects, trying to respond to decent demand growth, and, in some parts driven by lead-time concerns, to a clear demand-driven expansion restricted by supply chain inputs. I think we would have seen the same results whether we had COVID-19 issues on the factory floors or not. It is a clear rebound.”
And on the services side, Tony Nieves, chair of the ISM’s Services Business Survey Committee, said March’s strong gains are directly related to a few different factors, including COVID-19 vaccine distribution, pent-up consumer demand, and certain municipalities moving into different tier levels related to lifting pandemic-related disruptions, with more businesses re-opening.
“We have had this pent-up demand and build up, as we measure change month-over-month,” he said. “I don’t anticipate that things will stay on this fast pace. We will see some big growth increases, but this was like the big push and it will kind of wane, as we move through the months further down the road. I still do expect growth. There are still some industries at 50% capacity of where they could be. I would estimate that about three-quarters of the growth we are seeing right now will be spread out over the next several months.”
The ISM’s data is based on sentiment rather than hard data, so to speak. As for hard data, that often gets lumped in with freight transportation volumes. This is not to discredit those volumes, but, at the moment, things are seeing improvements volume-wise, but it is difficult to make an “apples-to-apples” comparison, given that freight transportation volumes a year ago at this time had truly bottomed out and at all-time lows.
In the coming months, sometime after the mid-year point, those comparisons will help us gauge certain things again, just not now. But as these ISM reports and the IHS Markit commentaries show, one thing becomes more and more clear: it is OK to feel good about what may be in store for us for more than a few reasons, too. And there are plenty of words we will hopefully be able to use to describe the turnaround. I hesitate to give it a word now, but, in time, I will. The good news is that we are getting closer.