Today's Viewpoint: A MarshBerry Publication

Economic Guidance In An Uncertain Economy

There are a multitude of forces acting upon all of us as we head toward the end of 2020. These same forces will shape much of what happens in 2021 and beyond. COVID-19, consumer activity, business decisions, the financial markets, fiscal stimulus, monetary stimulus, and politics are coming together to create trends and uncertainty to an extent many have never experienced before.

During MarshBerry’s Fall Connect Summit this week, Brian Beaulieu, CEO and Chief Economist, ITR Economics, broke down five key topics affecting the current U.S. economy for its membership:

  • COVID -19
  • Fiscal policy driven by Congress
  • Monetary policy driven by the Federal Reserve
  • The U.S. consumer’s response to the first three influences on this list
  • The insurance industry


Beaulieu discussed several measurements that generally suggest that the worst effects of COVID-19 on the U.S. economy are likely over – as long as a second wave does not result in another widespread shutdown. Specifically, Beaulieu sited statistics which demonstrated that deaths rates due to COVID-19 are down significantly when compared to the initial outbreak in April 2020.

  • In Texas, the fatality rate in September of 2.0% is nearly half of the April rate of 3.8%;
  • In Florida, the fatality rate of 3.5% is approximately one-third of the April mortality rate of 9.5%; and
  • In California, the mortality rate in September of 2.6% is less than half of the April morality rate of 6.0%.

Beaulieu suggested that this trend is not surprising in that, as a society, we have a great track record of improving the economic and social well-being of most individuals.

Fiscal Policy

In addressing the fiscal stimulus provided by the U.S. Congress in the form of cash paid directly to consumers, loans available for businesses, and moratoriums on foreclosures and evictions, Congress’ use of fiscal stimulus to avoid a more severe downturn appears to be working. Currently, 11 out of 12 leading indicators are trending positive including consumer activity, the Purchasing Managers Index, and single-family home starts.

Furthermore, according to Beaulieu, it should be noted that COVID-19 did not cause the recession. The pandemic only accelerated the timing and depth of the recession as already unstable companies with weakened cash flow and undercapitalized balance sheets were forced into foreclosure or bankruptcy sooner than they may have been otherwise. Finally, Congress’ actions appear to have resulted in a very unusual occurrence during a recession: U.S. disposable income actually went up and has leveled off at a point higher than where it was at year-end 2019. Moreover, U.S. savings also increased during the recession as a result of Congress’ multiple stimulus packages. Such an occurrence is highly unusual during an economic downturn.

Monetary Policy

The Federal Reserve’s aggressive reduction in the federal funds rate to near zero percent had positive effects on the U.S. economy, specifically stock price performance and mortgage loans. After only a relatively short downturn, the S&P 500 has rebounded to close at 3306.51 by September 21, 2020. Equally as important, Beaulieu indicated that the housing market is in full recovery; 30-year fixed rate mortgage loans are averaging under 3% currently. After adjusting for inflation, real borrowing costs are near zero, making it a very attractive time to invest in hard assets. Finally, after the yield curve turned negative (short-term interest rates are higher than long-term interest rates) for a short period at the end of 2019, it has since turned positive, indicating an economic recovery.

The Insurance Industry

One cautionary point that Beaulieu noted was the possibility that the U.S. insurance industry, which lags the U.S. economy generally, could be in for a rough six months. Beaulieu indicated that insurers, and indirectly insurance brokers, that are not intentional about driving new business sales over the next few quarters, could see a material drop in revenues as businesses buy less coverage.

2020-2021 Forecast

The U.S. economy, while still technically in a recession in 2Q20, is poised for a “V-shaped” recovery. The third quarter of 2020 will likely demonstrate increasing GDP, but it may not be until 2022 that the U.S. economy fully recovers to the level achieved immediately prior to the start of the pandemic. Even if this does occur, Beaulieu indicated that a stock market correction could occur in 2022 as the government may need to fund its liabilities, especially if China slows down its purchases of U.S. government debt. To the extent that more product manufacturing is brought back on shore (due to the nationalism trends affecting the U.S. and Europe), China’s appetite for U.S. debt could become even more restrained.

In summary, the insurance industry is well positioned for the longer turn, but there most certainly could be economic hurdles that cause short-term disruptions. Firms will need to continue to prioritize organic growth in order to fund investments for long-term viability and to drive shareholder value.

If you have questions about Today’s ViewPoint or would like to learn more about what recovery for insurance agents and brokers might look like, please email or call Gerard Vecchio, Managing Director at 212.972.4886.

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