Robinson Analytics Richmond Economic Forecast

Robinson Analytics Richmond Economic Forecast

Robinson Analytics decided to take a look into forecasting Richmond, VA 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.

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 19 of the publicly traded companies that the Greater Richmond Partnership has listed as key firms on their site as key companies in the region.

The first chart below is a visualization of the evaluation of the 15 firms in this basket, the Robinson Analytics Richmond Market Cap Weighted Index and the Standard & Poor’s 500 index.

What this chart communicates via the index I created is that the local Richmond economy will perform -300% worst than the national economy coming out of this recession. It will perform significantly worst than the country overall. Which communicates to me that the local economy will be seriously challenged coming out of this recession.

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 Richmond economy significantly diverges from the national economy. What this chart is telling us is that there is 8 times or 700% more risk in these basket of stocks or the Robinson Analytics Richmond index than the S & P 500 index. For example, in the first chart Altria Group shows a negative return. However, when I apply the risk adjustment, Altria Group is one of the worst performing stocks in this basket. This reflects the fact that Altria’s net income has been declining for the past 4 years. With last year’s earnings being reported as a loss.

Looking at the other side of the spectrum, I would expect CoStar 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 CoStar’s steady improvement in revenue and earnings 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. Also 75% of the time over the past year we could say the same for the Robinson Analytics Richmond Index basket of firms.

So about three quarters of the time over the next 6 to 9 months, Richmond community firms should experience a positive return on their business activity. As an example, with Altria Group, we could not have exited their stock during the year and got a positive result. However, for CoStar, 96% 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 very challenging 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 worst growth in the local Richmond community over the next 6 to 9 months when compared with the Nation’s economy overall.
  • This could translate into a reluctance of corporations to make investments in the community. Which could lead to slower job growth in the long-run.
  • If jobs growth is impacted, then there will definitely be an impact on wage growth for the community.
• There is 8 times more risk or volatility in the local Richmond economy than in the overall national economy. Which means that average return on business performance is significantly more volatile or less certain than the nations economy overall. The job of local leaders are to assess these risks and to try to mitigate them.
  • To get an idea of the type of risk that I am talking about, you can access an article about the recent Robins School of Business of the University of Richmond business survey that was taken of local businesses by clicking here.
  • To read article titled “ChamberRVA to start distributing $2,500 grants to businesses affected by COVID-19 pandemic“, click here.
• 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. How can we help local businesses to weather this storm?

“We use analytics on your work and business processes to gather the critical insights that you need to impact your business performance.”Click here to schedule a complimentary discussion session about how Robinson Analytics can help you.  To learn more, you can access his website at www.robinsonanalytics.com.