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Drop in gas prices, mortgage rates is due to COVID-19 concerns

Economists looking at what happened with SARS in early 2000's to build current models
Posted at 3:27 PM, Feb 28, 2020
and last updated 2020-02-28 17:17:37-05

GRAND RAPIDS, Mich. — As the financial and manufacturing worlds begin to be impacted by the recent strain of coronavirus, there have been several positive effects seen here in West Michigan.

At the moment, only a handful of confirmed cases of the virus, now referred to as COVID-19, have been identified in the United States. But Tuesday, officials with the Centers for Disease Control and Prevention said that spread of the virus into communities within the United States appears inevitable at this point.

There have not yet been any confirmed cases identified in Michigan.

FOX 17 sat down with Paul Isely, the Associate Dean of Grand Valley's Seidman College of Business, Friday afternoon to discuss the short- and long-term effects we can expect to see from the virus.

“If history is a guide, we expect things will be good as soon as people figure out what the extent of the virus is,” he said.

West Michigan is already seeing lower gas prices and lower interest rates as a result of the virus.

"One of the things the coronavirus has done is resulted in hundreds of millions of people not driving cars in China and as they don’t drive their cars, they’re not burning gas and so we’ve already seen gas prices come off their highs here in West Michigan and they have further to go," Isely told FOX 17 Friday.

Mortgage rates have also seen a big drop in the last two weeks. Isely says this is because, "people have been running to safety and running to safety means buying things like US treasuries and that's driving down the interest rate."

In terms of comparisons, Isely says COVID-19 appears to be impacting the economic sector much like the SARS virus did the early 2000s.

“Unfortunately China was four times smaller and had 10 times less exposure to international travel than it does now. We do know that with SARS, the effect on the economy wasn’t lasting," he said.

According to Isely, economists are now basing current models on what we saw happen with SARS almost two decades ago.

But the reality is, you are probably watching your 401K take a substantial hit right now. Because of the uncertainty still surrounding the virus, our financial markets have already taken a tumble. Isely says it's important to focus on the long-term.

He told FOX 17, “The stock market tends to overreact. And they tend to overreact because of the level of uncertainty. Right now there is a lot of uncertainty about how far the virus will spread, how it will affect supply chains outside of China”.

Isely says supply chains too are already taking a hit.

"Normally, the supply chain does shut down during the Lunar New Year, that was the last week of January. And then it would have come back the first week in February. By the third week in February, the supply chain coming from China was running at less than 50 percent. So less than 50% of the stuff we would have expected to ship was being shipped," Isely said.

He says this could eventually have far-reaching impacts, throughout multiple industries, if the disruption in supply chain lasts.

Isely telling FOX 17, "The province that Wuhan is in has a lot of steel, chemicals that they work with, so it affects things all over the place. We know that batteries, for some types of things, have slowed down. We know that Coca-Cola has warned that they were having shortages or might have shortages of one of their sweeteners."

All in all he says it remains to be seen how severe the impact on the country's financial markets will be. "Right now there’s not a lot to do and there’s not a lot that's actually a problem here in west Michigan," Isely said.

Visit the CDC's website for the latest information on the virus.