Emory Professor Addresses Packaging Industry on Economic Impact of COVID-19

With the state of the economy in flux as a result of the ongoing COVID-19 pandemic, the Paperboard Packaging Council (PPC) hosted a webinar on April 29 for its members to hear from a familiar voice, who happens to be a leading expert on the topic.

Dr. Jeff Rosensweig, a professor of economics at Emory University in Atlanta, has been a recurring speaker at PPC events, and shared his outlook on current and projected economic trends in a “Virtual Economic Outlook” session. The webinar covered a variety of economic topics, spanning the impact on the packaging and retail industries, stock market trends, unemployment, and what the economic recovery may look like as the nation and world works its way out of the pandemic.

Rosensweig opened the presentation by providing some context around the record unemployment claims that have been filed in the United States as a result of the virus. For example, the number of initial claims filed in the week ending March 28 was estimated at approximately 6.9 million, a drastic increase from the prior weekly record of approximately 700,000. One of the reasons this number is so high, Rosensweig explained, is that unlike in previous recessions, such as in 2008, gig workers have become eligible for benefits.

Another impact of unemployment to be aware of, Rosensweig said, is the $600 per week benefit that the federal government is contributing on top of the states’ benefits. While the weekly payout the states provide varies, Rosensweig said on average, it’s approximately $400 per week. The $600 federal payment is unlikely to last forever, he said, but in the meantime, Rosensweig said it may discourage those receiving it to find employment, as in some circumstances the approximately $1,000 weekly payment would be more than they would receive if they were back to being employed.

As the sudden halt to economic activity took place, Rosensweig explained the impact on the resulting stock market volatility. He said that as an economist, he regularly tracks the Vix Index, a benchmarking system created by Cboe Global Markets that provides an outlook on expected market volatility. He said that when the pandemic first hit, the Vix Index jumped to all time highs.

When market volatility spikes, Rosensweig explained that around the world, people tend to seek out a “safe haven” for their assets. In many cases, this safe haven is the United States, due to the stability of the country and the high regard of the US dollar. This has led to an increase of people seeking to invest in bonds rather than stocks, and to diversify their assets into real estate as rates come down.

"There's going to be a historic time to refinance, even if real estate prices come down a lot," Rosensweig said. "People are nervous and they want to essentially hold cash, like money market accounts and sometimes bonds. If real estate comes down a lot and the prices are low and mortgages are very low, if you have good credit, it might be a good time to change your portfolio and pick up a little bit of real estate at a low price."

Another aspect of the United States economy that has become increasingly volatile during the pandemic is the retail sector. Rosensweig explained that even before COVID-19 hit, e-commerce sales were trending upward, but have gone up significantly as more people turn to online shopping in the wake of stay-at-home orders. He recommended that those in attendance not be too concerned about reports of dramatic drops in retail sales, as some of the contributors to those statistics are not directly relevant to the packaging industry. For example, Rosensweig said that gas station sales are counted as part of retail, and now that travel has become limited, gasoline sales have dropped dramatically.

What Rosensweig did recommend the audience be prepared for, is a shift in how people shop, even after the pandemic comes to an end. With more of the population recognizing the convenience of — and becoming more comfortable with — online shopping, it’s feasible that consumer behavior will be changed by this experience and the shift to e-commerce will remain, leading to a need for more packaging designed for direct to consumer shipping.

In the short term, Rosensweig said there has been an increase in the purchasing of frozen foods, as consumers want to limit their trips to the grocery store. For packaging companies looking for a market segment to target, the frozen food sector is one with immediate opportunities.

In the Q&A portion of the webinar, Rosensweig was asked about the potential shape of the economic recovery curve. While there have been some reports of a “V” shaped recovery with a steep decline followed by a rapid recovery, Rosensweig said he sees it a little differently. Rather than a V, he said the recovery is more likely to look like a Nike “swoosh,” in which there is a rapid decline, followed by a more gradual recovery.

Another economic change that may occur as a result of the pandemic that Rosensweig addressed is in the supply chain of goods coming into the United States. He said that this situation has led to a realization of the riskiness of having such a large bulk of goods coming in from a single supplier, and there may end up being an effort to “reshore” the supply chain from China to the United States.

Additionally, Rosensweig said there could also be an effort to “near shore” the supply chain, and import more goods from Canada and Mexico, as well as diversifying the supply chain in Asia to include more goods from countries like Vietnam and Indonesia to decrease the reliance the country has on China.

“We see how risky it is to have one major supplier in our supply chain coming from China, which has become the world’s manufacturing hub,” Rosensweig said. “There’s hope that we’ll reshore.”