Robinson Analytics Austin Economic Forecast
Robinson Analytics decided to take a look into forecasting Austin, TX economy coming out of this Covid-19 Pandemic recession. I wanted to get a feel for how the local economy might perform in relation to the overall United States economy.
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My approach was to do some financial markets analysis to get a feel what might be happening in the underlying economy going forward (Financial markets are forward looking for the underlying economy.). I developed a basket of publicly traded firms to develop an index for the region. My approach was to use 18 of the publicly traded companies that the Austin Chamber has listed on their site as major employers in the region.
The first chart below is a visualization of the evaluation of the 18 firms in this basket, the Robinson Analytics Austin Market Cap Weighted Index and the Standard & Poor’s 500 index.
What this chart communicates via the index I created is that the local Austin economy will perform 550% better than the national economy coming out of this recession. It will perform significantly better than the country overall. Which communicates to me that the local economy will be in a much better position challenged coming out of this recession compared with the national economy overall.
My next step was to go beyond an average return over the past year, but to take into account risk. The chart below expresses the above returns with risk over the past year taken into account.
When I take risk into account, the Austin economy significantly diverges from the national economy. What this chart is telling us is that there is 46% less risk in these basket of stocks or the Robinson Analytics Austin index than the S & P 500 index. For example, in the first chart Dell has an average return of -29%. However, when I apply the risk factor to the return, you see that Dell is way more very risky. This index is reflecting the fact that Dell has experienced operating losses for three of the past 4 years.
Looking at the other side of the spectrum, I would expect Applied Materials to perform the best over the next 6 to 9 months by far over any of the other basket of firms after adjusting for risk. This is a reflection of Applied Materials consistent revenue and earnings growth over the past 4 years.
I next took a look at to see what probability during the year we could have exited the markets and gotten a positive return. As you can see in the chart below, 75% of the time during the past year, we could have exited the S &P 500 and got a positive return. 77% of the time over the past year we could say the same for the Robinson Analytics Austin Index basket of firms.
So about three quarters of the time over the next 6 to 9 months, Austin community firms should experience a positive return on their business activity. As an example, with Dell, we could not have exited their stock during the year and got a positive result. However, for Apple, 97% of the time over the past year we could have exited the stock and got a positive return.
I would forecast that there is going to be a period of 2 to 3 months going forward that is going to be slow up ramp for local businesses. This would of course depend on whether or not we have a second phase to this Covid-19 outbreak.
In conclusion,
- We should expect to see significantly better growth in the local Austin community over the next 6 to 9 months when compared with the Nation’s economy overall.
- There is 46% less risk or volatility in the local Austin economy than in the overall national economy. Which means that the average return on business performance is significantly less volatile or more certain than the nations economy overall.
- I believe that about three quarters of the time local businesses should provide a positive return on their activity over the next 6 to 9 month’s. However, about one quarter of the time, they will not experience positive returns on their business activity as they ramp up. How can we help local businesses to weather this storm?
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