As States Are Reopening Some Businesses, an Economic Rebound Will Follow

By | May 11, 2020

Welcome to FTR’s “Monday Morning Coffee “ blog. The following article is designed to keep busy executives up to date with the latest economic data releases. Released every Monday, this blog promises to keep our clientele updated with the latest weekly economic news and developments, highlighting its impact on the transportation, freight, and equipment markets. Hopefully, this will be an informative addition to the fine body of work associated with FTR.


Global shares rallied on Friday as investors cheered signs of improving Sino-American relations and looked for more governments reopening their economies. The MSCI’s broadest index of global stocks, which tracks equities in 49 countries, rose about half a percent on Friday. The Euro STOXX 600 was 0.6% higher. Oil prices climbed as countries, including Australia moved ahead with plans to relax economic and social lockdowns put in place, kindling market hopes for a boost in demand for crude and its products. Brent crude was up 77 cents, or 2.6% on Friday to $30.23 a barrel. Top U.S. and Chinese trade representatives discussed their Phase 1 trade deal on Friday, with China saying they agreed to improve the atmosphere for its implementation and both sides said obligations would be met.

U.S. stocks ended Friday sharply higher despite the Labor Department data that showed 20.5 million jobs were lost in April and unemployment rate rising to 14.7%, underscoring the impact of the COVD-19 virus had on the American economy. The Dow Jones Industrial Average rose 455.43 points, or 1.9% to close at 24,331.32 and the S&P 500 Index gained 48.61 points, or 1.7% to end the session at 2,929.80. For the week, the Dow advanced 2.6%, while the S&P ended 3.5% higher. Equity markets powered through a gantlet of grim economic data points on jobs to close Friday out with the weekly gain in about a month. So far, the equities market has discounted the economic weakness amid progress toward the reopening of seized-up economies in the U.S. and abroad, as restrictions imposed to limit the spread of the deadly pathogen are loosened gradually.

Michigan and California, two large manufacturing states, acted on Thursday to allow factories to reopen from the coronavirus lockdowns. Governor Gretchen Whitmer of Michigan gave the go-ahead to manufacturers in her state to restart on May 11, removing a major obstacle to North American automakers seeking to bring thousands of workers back to work this month. Mexico is another important link in the auto industry chain, that is still closed. However, the Mexican government plans to make its decision on factory openings on May 11. In California, Governor Gavin Newsom unveiled rules permitting manufacturers in his state to reopen as early as May 8. Michigan’s announcement came three days after Ohio, also a key player in the auto industry, allowed manufacturers to reopen on May 11. The U.S. economy has been hurt hard by the closure of businesses, casting Americans out of work in numbers not seen since the Great Depression.

Next week, we will likely see more bad news. The NFIB small business index will be released, as well as retail sales industrial production and inflation. Equity markets have marched forward on the hope that economic activity will start to rebound. As states are reopening some businesses, an economic rebound will follow. The big question is how hard and how fast the bounce will be. Of course, a vaccine would go far in repairing the economy, but barring a quick fix, the recovery is likely to be slower than anticipated. Of course, a lot depends on the virus cycle. Can it be contained as we reopen? Will there be another outbreak? The future of the economy will depend on how events play out in the coming weeks.

Latest Data

The U.S. Economy:

Wholesale inventories fell 1% in March, following February’s 0.6% reduction. Wholesale inventories were down 2% from a year earlier. Retail inventories were up 0.9% from February’s level. Motor vehicles and parts inventories were up 5.1%. Retail inventories, excluding the auto sector, fell 1.3%. When pandemic stresses begin to abate, consumption behavior may generate a lot of volatility month-to-month. This will cause suppliers to struggle to calibrate.

U.S. vehicle sales dropped significantly for a second consecutive moth in April, as the auto market tries to adjust with the COVID-19 virus and resulting lockdowns. Sales equaled an annualized pace of 9 million in April, down from10.8 million in March. Sales in April were down 46.2% year-over-year. Light truck sales were down 41.8% y/y. Car sales were down 57% year-over-year. April should be the worst month. May should begin the long road back, as states start to reopen and the auto market adjusts to on-lie sales. April was the worst month for sales on record and the largest year-on-year decline on record. The previous record was in February 2009 at 40.8%. The 20099 pull back in auto purchases required the U.S. government to step in and save the auto industry. That is not likely now because automakers are ion a much better financial shape than then. Also, they had to deal with the credit crunch and high oil prices then. Still sales are likely to remain below 16 million until late in 2021. If the virus reemerges before a vaccine is discovered, the long road upwards may see unintended potholes.

U.S. manufacturing is in a deep downturn as the COID-19 virus has led to many nonessential businesses closing, supply chains are disrupted and the U.S and the global economies are in recession. Factory orders declined 10.3% in March, following a 0.3% drop in February. Excluding transportation, factory orders dropped 3.7%, the third consecutive decline. Orders are likely to be worse in April. Durable goods orders fell 14.7% and orders excluding transportation, were down 0.4%, the fourth decline in the last five months. Core capital goods orders were down 0.1% for a second consecutive monthly. Shipments fell 5.2%, the third consecutive decline. The road back for the industrial sector will not be easy. Consumers will be slow coming back to big-ticket items like cars. On top of that, manufacturers have to contend with the strong dollar, a global recession and Trump’s tariffs on key inputs. Factories will slowly reopen in May, but the consumer is likely to be slow to return in strength.

The U.S. non-manufacturing sector fell sharply in April, the first decline into contraction territory since December 2009. The ISM non-manufacturing index fell from 52.5 in March to 41.8 in April, breaking a streak of 122 months of expansion. The business activity index dropped by 22 points to 26, the lowest reading on record. New orders swooned from 52.9 in March to 32.9 in April, the first reading below the 50 mark in 128 consecutive months. Supplier deliveries jumped by 16.2 percentage points to 78.3 in April, a record high and a bad sign that delivery speeds are increasing. The employment index fell by 17 points to 30 in April. All 18 industries reported a decline in employment. The prices paid index increased from 50 in March to 55.1. Items up in price were cleaning products, personal protective equipment and ventilators. Although the service economy will start to show signs of life in May, it will likely be a long road before the common consumer regains full strength.

Wholesale inventories fell by 0.8% in March, following a 0.7% drop in February. Durable goods inventories increased by 0.5%, while nondurable goods inventories declined by 2.7%. Wholesale sales plummeted by 5.2% after February’s 0.7% decrease. The decline in sales pushed the inventory-to-sales ratio up to 1.37 in March from 1.31 in February. The month-to-moth jump in the I/S ratio was the second largest on record, trailing only the increase from October to November 2008. April’s reading on inventories and sales will be worse. As manufacturers reopen, they will have to contend with excessive inventories, weak demand and an uncertain future.

A tsunami hit the labor market in April. Employment contracted by an unprecedented 20.5 million people. The only comfort was that losses were less than expected, as the labor force contracted by 6.4 million as many people left the labor force. To out this in perspective, the labor market contracted by 8.7 million in the Great Recession. The largest loss was in leisure/hospitality, which contracted by 7.56 million jobs, followed by 2.5 million in education/healthcare and 2.1 million each in retail and professional/business services. Surprisingly, the workweek increased slightly to 34.2, indicating that workers who kept their jobs worked more hours. As expected, average hourly earnings increased to $30.01 from $28.67, as most of the job losses were concentrated in lower-paying industries. The good news is that more than half the states have already started relaxing restrictions on businesses. Unless a vaccine is found quickly, many jobs, especially I leisure/hospitality will be gone. We expect half the workers will be employed by the fall. The future will depend on the cycle of the virus, the development of the vaccine and how quickly the consumer rebounds.


Orders for German industrial goods fell in March at the steepest rate since records began in 1991 as demand collapsed due to the coronavirus epidemic. Prospects for a quick recovery in Europe’s largest economy look bleak. Foreign and domestic orders fell 15.6% in March, according to the Statistic’s office. With Europe’s largest economy in trouble, the prospects for the remainder of the euro-block look bleak. The European Commission projects the euro zone economy will contract by a record 7.7% this year. The Commission also projects inflation will almost disappear and public debt will increase sharply leading to significantly larger budgets. The Commission projects inflation will slow to 0.2% in 2020, before accelerating to 1.1% next year. Euro zone economic growth will return to 6.3% growth in 2021. The budget deficit will rise to 8.5% of GDP from 0.6% last year. Aggregate deficits will swell to 102.7% of GDP this year and recede to only 98.8% of GDP in 2021.

China’s exports unexpectedly rebounded in April for the first time this year, as factories raced to make up for lost sales due to the coronavirus pandemic. However, a big fall in imports signaled trouble ahead as the global economy slips into recession. Overseas shipments rose 3.5% from a year earlier. The first positive growth since last December. The increase was driven by a large increase in exports of medical equipment, traditional Chinese medicine and textiles, including masks. China exported $10 billion in medical products in the March-April period. The daily export value of medical supplies jumped more than 3 times in April. Some economist also attributed the rise in exports to factory closures elsewhere, just as China’s manufacturers reopened after extended shutdowns due to the virus. This suggest China’s production lines could see a better May as much of the West is shut down. Imports fell 14.2% from a year earlier, the biggest contraction since January 2016, following a 0.9% drop the previous month. That decline reflect weak domestic demand and a falloff in commodity prices. China imported $36.7 billion in goods from the United States in the first four months of the year. That compared with a Chinese target of about $218 billion this year billion this year under the early phases trade deal. China is being targeted by Trump in recent days and part of the noise is driven by the coming election. China may have provide further stimulus to the domestic side if trade tensions increase.

Important Data Releases This Week

The April NFIB small business optimism index will be released on Tuesday, May 12 at 6:00 AM. The index fell sharply in March to 96.4 and a further retreat is likely in April to 93. How the index increases when businesses start to reopen will be critical for the economy and job generation.

 The April consumer price index will be released Tuesday, May 12 at 8:30 AM. The CPI fell 0.4% in March, while the core was down 0.1%. We expect the index to backtrack 0.3% in April and the core to fall 0.2%.

April retail sales will be released on Friday, May 15 at 8:30 AM. Retail sales plunged in the middle of March, as the country went into lockdown. Sales fell 8.7% in March, but it would have been worse except for the fact that some stores, like grocery stores and warehouses saw strong sales of food and other items. Sales will be bad in April falling 12%, but as some stores are opening in May, that should be the worst. Sales should normalize in the second half of the year.

The April industrial production index index will be released on Friday, May 15 at 9:15 AM.  Industrial production came to a screeching halt in March, falling 5.4%. It was the biggest monthly decline since the demobilization after World War II. With few factories running in April, another big decline is in the cards. Industrial production is projected to decline 11% in April. With some factories reopening in May, April should be the low point. The factory sector will see rough times in the second half of the year with supply chain restraints and a slow return of the consumer.

The March business inventories will be released on Friday, May 15 at 10:00 AM.  Inventories fell 0.4% in February but March saw the closing of factories. We expect stocks to fall 0.8% in March, but sales will have fallen deeply raising the inventory-to-sales ratio sharply.

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About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.