Mutual Growth: The Coronavirus Economy And What Comes Next

Dorothy Jaworski – Director of Treasury and Risk Management

As governments and central banks respond to the unprecedented economic impact of the coronavirus pandemic, businesses and economic analysts are trying to read key indicators to inform critical decision making.

In this episode, we’re joined by Dorothy Jaworski, Penn Community Bank’s Director of Treasury and Risk Management, to get her thoughts on the state of the economy and her forecast for what comes next. In our conversation, we discuss:

• The key economic indicators she’s watching,
• How and why banks are making decisions at this time of volatility, and

Her reaction to Administration and Fed policies to aid the economy.

(2:28)

HOST: What’s driving the market’s volatility? Are there any underlying economic conditions which are exacerbating this volatility?

1. Jaworski: Markets are forward looking. Interest rates fell first, Fed actions. Then stocks reacted swiftly.  Uncertainty about the virus and economy drove this.  A rush for liquidity by sellers of bonds led to price distortions, which the Federal Reserve served to calm by their massive programs.

(5:05)

Can you explain the yield curve as a key indicator and discuss what it’s telling us right now?

The yield curve is generally a signal of where rates will go and what the economy is expected to do.  Also inflation. Steep yield curves and today’s very flat yield curve and what both mean for banks and investors.

(7:09)

As a financial institution, Penn Community Bank makes decisions based off multiple economic and market factors. Can you give us a glimpse into what those decisions are and how they impact the bank as a business and, ultimately, customers?

The economy and interest rates move together and we base our loan and deposit pricing on market rates.  We constantly project our customers’ cash needs so that we have adequate cash.  We always look at ways to grow through loans and deposits, and always evaluate new locations for branches.  Right now, we are holding extra cash because of uncertainty over the length of this current crisis.

(10:55)

Are there any comparisons to this economic downturn to other economic events people remember of know of – like the Great Depression or the 2008 Great Recession?

Today’s economic slowdown is unique in that a shutdown of sectors of the economy destroyed demand for products and left many closed businesses without revenue.  The great depression was a prolonged downturn of ten years.  While our short term decline in GDP will rival the decline of 25% in the 1930s, today we are expected to rebound strongly once the economy reopens.  The great recession of 2008 was a crisis of mortgages and housing prices, that spread to all sectors.  It lasted almost two years, which is not expected now.

(14:40)

Whether it’s been the CARES Act or the Federal Reserve’s various moves – what do you think of the responses from Washington in response to this unprecedented economic situation?

I am on record as praising the efforts of the Fed and Congress in quickly acting to calm markets and get relief cash into the hands of individuals and businesses.  I will hat Fed Chair Powell and Sec. Mnuchin are new heroes.

(16:50)

Can you look into your crystal ball and tell us where you think we’re heading from here?

Projections are difficult because it is hard to tell just how much of the economy is still running and how much is closed.  Last year, we grew 2.3%.  Estimates of $25 billion per day being lost by Fed.  Economists’ projections for 2Q20, 3Q20, and 4Q20.  While Congress stepped in with relief bills, there will be a tremendous amount of new debt issued and that likely will cut growth to closer to 1% than 2% in the next several years.

Dorothy’s Q1 Economic Update is available HERE. If you would like to sign up to receive this newsletter directly each quarter, email ntaptykoff@penncommunitybank.com