The Northwest Louisiana region, just like the rest of the country, faces a long road to economic normalcy according to Rob Kaplan, president and CEO of the Federal Reserve Bank of Dallas
Kaplan provided a virtual economic Update for Shreveport-Bossier Monday, Nov. 9 in conjunction with the Greater Shreveport and Bossier Chambers of Commerce. LSU Shreveport Chancellor Larry Clark acted as a moderator for the event.
Kaplan began by recapping the devastation wrought by the COVID-19 pandemic. He noted that in Q2, GDP dropped by 32% with the economy bottoming out in April due to lockdowns. However, Kaplan pointed out the economy recovered before growth stalled in June through August, then picked back up through September. While he expects more positives for Q4, a lot is left to be determined due to COVID cases increasing.
“With all those fits and starts, 3rd Quarter GDP rose by 33%. We’re still behind in where we were, but we’re still on the rebound,” said Kaplan. “We are planning for solid growth for the 4th Quarter, but we are right in the middle of a resurgence of the virus and we’re going to see how much that reduced mobility and engagement and that resurgence in larger cities overwhelms the hospital systems.”
He said the base for 2020 is that the economy will retract by 2.5%, but he said that estimate could improve. He also looked ahead to the beginning of 2021, saying, “The first part of next year will be challenging due to a resurgence of the virus, but the Dallas Fed expects the economy to pick up speed as the year continues and the economy will grow by 3.5% in 2021.”
He said the future of the U.S. economy is better than many other nations as household income was solid and consumer spending stayed strong. Did not see that.
“The U.S. is going to have less severe retraction and that is because of the aggressive fiscal and monetary policy,” Kaplan explained. “Inflation has been much more muted than expected.”
He also noted there is accelerated technological disruption across a swath of different industries. Kaplan said there are hosts of businesses that can act remotely and utilize technology that limits in-person interaction.
“We’re seeing a divergence between industries…People are able to work and shop remotely and the pandemic has accelerated those technologies. Some of that may be temporary, but some may be permanent,” he said.
Kaplan added it was hard to think of anything with this type of disruption over the past century.
“I’ve been struck over the last five years by the rate of technological acceleration. This pandemic has further accelerated a trend,” he said.
As it comes to the oil and gas industry, Kaplan said U.S. oil and gas production will decline from 12.8M barrels per day in January to end at roughly 10M barrels per day. Kaplan explained the oil and gas industry suffered from demand shock due to COVID and supply shock from OPEC. He said this will lead production in 2021 to be flat, and that excess inventory won’t be used up until the first half of 2022.
“You’re seeing significant job losses, restructurings, and bankruptcies. It’s a rapidly consolidating industry — players are lowering the cost of production and need more scale,” he said.
Kaplan deferred to comment on forecasting the fiscal policy of President Elect Joe Biden, especially as it relates to the oil and gas industry.
“It’s our judgement that we’re going to need to look at all aspects of global supply/demand for oil and gas. This is an industry going through a lot of stress,” said Kaplan. “It’s of best interest for the U.S. to have a healthy oil and gas industry, even as we transition to renewable energy.”
An area the Dallas Fed is watching closely is employment. Kaplan pointed to the “sizable number” of workers who lost jobs, saying the unemployment rate will “grind down” in 2021.
He noted that women with a high school education or less were severely affected and income inequality forced several steps backwards from closing those gaps.
“If you got a high school education or less, you’re likely working in a service sector job with person-to-person contact. It’s much more likely that you lost your job and fiscal support is essential. If you have a college education or greater, it’s much more likely you were able to work remotely, you didn’t lose your job and you were less likely to see a drop in your income,” said Kaplan.
Following Kaplan’s remarks, Clark facilitated a Q&A session. Clark noted that commercial real estate merchants are losing key tenants, and he asked how that type of disruption is informing the Dallas Fed’s decisions.
“Our job is to understand what’s going on in the economy. With the change like you described, my job is to understand this is the nature of capitalism and we want to make decisions that allow capitalism to work,” Kaplan noted.
Kaplan told Clark that LSUS plays an important part in helping the local region. Kaplan said it has been more challenging for Louisiana to grow its population, has a history of lost businesses, and a challenge to grow diversification.
“Your area is unique as you see a challenge of attracting and keeping young people to build a workforce. This is where your university plays a vital role in the vibrancy of the community,” he explained.