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.
U.S. stocks finished the holiday-shortened week sharply higher Thursday, with the main indexes recovering about half their losses that were racked up in late-March during the height of fears about the impact of COVID-19. Investors seems to shrug off another 6.6 million jobless claims and a wild ride in the energy sector, to focus on the Federal Reserve’s announcement of new efforts to help fix parts of the financial markets and the economy debilitated by the coronavirus shutdowns. The Dow Jones Industrial Average rose 1.22%, or 285.80 points to close at 23,719.37. The S&P increased 39.84 points, or 1.5% to end at 2,789.82. For the week, the Dow rose 12.67%, while the S&P notched a 12.1% gain. From its recent March 23 low, the Dow is up 25.01% and the S&P is up 18.2%.
The progress of containing COVID-19 and the policies that are being passed to limit the economic damage and prepare the ground for a rebound in economic activity is more important now than economic data. The growth rate of COVID-19 seems to be flattening and the outbreak in the U.S. was about two weeks later than in Europe. The major economies have about the same population as the U.S. The curve in Europe has flattened there, although some nations are different than others in the development and containment of the virus. A few nations there, notably Austria, have already announced plans to reopen their economies. Others will follow in coming weeks. The U.S. will follow the same pattern but a total reopening does appear to be a few weeks off. In order for businesses to reopen safely, there has to be widespread testing and therapeutic available to treat those who have the disease It will likely be the end of May before restrictions are lifted and CDC criteria to track and eliminate the virus are met.
The economic toll from the efforts to contain the virus was evident in the National Federation of Small Business’s Optimism Index, which tumbled 8.1 points in March, the largest one-month decline in the history of the index. Even that drop did not reflect the falloff in business activity, as it took place in the middle of the month. A special survey by the NFIB found that most small businesses have only a one-or-two-month period of being closed before it would be very difficult to reopen. This explains that the Payroll Protection Program and the Fed’s Main Street Lending Program are essential in order for the economy to recover. It will take time for both programs to ramp up but should be in place when the economy is ready to reopen. The latest initial unemployment claims surged by 6.6 million last week bringing the three-week total to an astonishing 17 million.
Next week, we get a look at retail sales, industrial production, business inventories, housing starts and jobless claims. Incoming data for March has been bad and things will get worse in April. Developments in containing the virus will be instrumental to the path of the economy. A relaxation of lockdowns and stay-at-home measures will be implemented gradually based on local conditions. Health authorities will want to see the growth rate of new cases fall consistently for two weeks and a daily growth rate below 1% before they consider relaxing restrictions. The quicker the virus is contained, the stronger the economic rebound.
The U.S. Economy:
The NFIB Small Business Optimism Index dropped from 104.5 in February to 96.4 in March, the largest monthly decline since the index was started in 1986. The impact of the COVID-19 virus has hurt business activity and confidence. Nine out of ten components fell during the month. Plans to increase employment fell from 21% to 9%. Capital expenditure plans backtracked from 26% to 21. Respondents who expected retail sales to increase fell from 18 to -12. Those who expect the economy to improve fell from 22% to 5%. The survey was conducted in the first half of March before the CARES Act was passed, also before many states closed nonessential businesses and issued stay at home orders. The decline in the index sends a clear signal, federal stimulus needs to reach them quickly. If a lot of small businesses face bankruptcies, the already severe recession will be worse and longer.
Producer prices slipped 0.2% in March, but disinflationary pressures will intensify over the next few months. The bulk of the March decline came from energy prices. Food prices were unchanged. Core goods PPI rose 0.2%. The final demand index was up 0.7% from a year earlier, while the goods index is down 1.2%. Core gods was up 0.6% y/y. The consumer price index fell 0.4% in March. Energy prices dropped 5.8%, while food prices were up 0.3%. Excluding food and energy, the core CPI fell 0.1%. From a year earlier, the headline CPI was up 1.5% in March, while the core index was up 2.1%. With much of the globe in recession, inflation will be weak, at least through the year, as economic activity will likely return at only a modest pace, at best.
Important Data Releases This Week
March retail sales will be released on Wednesday, April 15 at 8:30 AM. The March retail sales report will be wild. Sales will be strong at grocery stores and warehouse clubs and online vendors. On the other hand, automobile sales will fall by at least 50% and gas station sales will by hit by declines in volume and price. Expect total sales to fall by 5% in March. Bars and restaurants usually comprise 2% of retail sales. Grocery stores are around 12% and gas stations 8%. This mixture for March will be interesting.
March industrial production will be released Wednesday, April 15 at 9:15 AM. March production was semi-normal before the onslaught of COVID-19. We expect total IP to have advanced 0.2% for March. The shutdown of factories will show up in April data.
February business inventories will be released Wednesday, April 15 at 10:00 AM. Inventory build was normal in February, before the storm, but there was supply chain difficulties emanating from Asia. We expect stocks to fall 0.1%.
March housing starts will be released Thursday, April 16 at 10:00 AM. Housing started the year on a strong note but that is old news. COVID-19 made shopping for a new home unthinkable and mortgage demand has plunged. The millions of layoffs will destroy housing. Expect starts to fall to 1.3 million level for March and below 1 million in April.
Weekly jobless claims will be released on Thursday, April 16. The labor market is in a meltdown. Almost 17 million people have filed for unemployment benefits in the last three weeks, implying an unemployment rate in the double-digits. The number of new claims has probably peaked. The important question is how long is the duration?