Many states are starting to reopen, what does it mean to the recovery?

By | May 4, 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.


World stocks pulled back further on Friday on grim U.S. economic data, mixed company results and President Donald Trump’s threat to impose new tariffs on China over the coronavirus crisis. MSCI’s index of global stocks fell 0.5% after a tumble late Thursday broke a six-day winning streak for the index. Many markets were closed Friday for the May 1 celebration. Meantime U.S. initial jobless claims totaled 3.84 million for the week ended Apr. 15, bringing the total to 30 million and personal spending tumbled 7.5% in March, the biggest decline on record. Still, the S&P 500 surged 12.7% in April, the best monthly performance since Jan. 1987. Oil prices rose, helped by major producers starting output cuts to offset the slump in fuel demand and data showing U.S. inventories growing less than expected.

Stocks closed sharply lower on Friday in an ugly start to the month of May as investors showed disappointment with earnings from big tech companies and with President Trump’s threat to impose import tariffs on China for its handling of the COVID-19 pandemic. The Dow Jones Industrial Average fell 622.03 points, or 2.6% to end at 23,723.69, while the S&P 500 Index fell 81.72 points, or 2.8% to settle at 2,830.71. After gains Monday through Thursday helped major indexes to their best April in years the Friday decline left the benchmarks with losses for the week, with the Dow and the S&P both down 0.2%.

U.S. GDP growth was running near potential through the end of last year and likely through February before falling off the cliff as a result of COVID-19. The net drag was a decline of 4.8% in real GDP in the first quarter. It was the largest decline since the final quarter of 2008.Weakness was widespread cross segments. Consumer spending contributed 5.3% to the decline, down from a 1.2% positive contribution in the fourth quarter. Government contributed 0.1% and almost all of it came from the federal government. Inventories subtracted 0.5 percentage points. Fixed investment was a 0.4% drag in the first quarter. Trade added 1.3 percentage points as imports plunged more severely than exports. Final sales fell 4.3% in the first quarter. A severe recession is underway but we might be reaching the apex, as some states are reopening. The magnitude of the decline and its length remain uncertain and that will depend on the virus and the government response. Until there is wide-spread availability of a vaccine, the future remains largely unknown.

An additional 3.8 million Americans filed for unemployment insurance last week, bringing the total over the last six weeks to over 30 million. With so many jobs lost and others at risk, Americans have cut back on spending. Personal spending fell 7.3% in March, the largest decline on record. Service spending accounts for 45% of GDP and is usually steady even in the worst of times. Service spending was down 9.5%, record shattering for a series that never dropped more than 1% in a month. The good news is that incomes only dropped 2.0%, causing the savings rate to jump to a 39-year high of 13.1%. Construction spending surprised on the upside in March, rising 0.9%, driven by the residential sector, which rose 2.3%. Unfortunately, with consumer confidence shattered and banks starting to tighten, the future of housing looks bleak, despite record low mortgage rates. The manufacturing sector has fallen into a deep hole and it is uncertain how the recovery will unfold. The ISM manufacturing index fell from 49.1 in March to 41.5 in April. A surge in supplier deliveries, which increased from 65 to 76, kept the index from crashing lower. New orders fell from 42.2 to 27.5. Fifteen out of 18 industries reported a decline in new orders in April.

Many states are starting to reopen, but the big question is, what does it mean to the recovery? The outlook remains highly uncertain for both the cycle of the virus and economic activity. While states may lift stay-at-home orders, the attitude of the consumer will be the pivotal element for the economy. Next week, we get a look at advanced trade in goods, ending home sales, personal income and outlays, inflation, the ISM manufacturing index, construction spending and motor vehicle sales.  There is both pent-up demand and the fact that social distancing rules will stay in place for several more weeks. The rapid fiscal and monetary stimulus should help the economy right itself, but until we have a vaccine, or if until the risks of a reinfection fade, a rapid resurgence in economic activity looks unlikely. There are optimistic reports that a vaccine might be available by the fall and readily available by early next-year. If so, the recovery for the second half of the year may be subdued, but 2021 may have big upside potential.

Latest Data

The U.S. Economy:

The advance estimate shows the goods deficit widened from $59.9 billion in February to $64.2 billion in March. Goods exports declined 6.7% in March. The weakness was broad-based but there was a sizable decline in exports of automotive products. Imports fell 2.4%. Declines in imports of automobiles and consumer goods more than offset the increases in food and beverage imports. COVID-19 affected trade in March and April will likely be worse. Both imports and exports fell sharply in March. This is likely attributed to the automakers shuttering production in the U.S. in the second half of the month and consumer staying at home. Some states are beginning to reopen nonessential businesses but many have stay-at-home orders still in place until May, or early June.

 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.

Personal income fell 2% in March, exceeding the consensus projections. Personal spending fell 7.3% after rising 0.1% in February. This was the largest decline on record, exceeding the 2.5% drop in January 1987. Durable goods spending was weak, falling 14.8%, not quite the record. Service spending was down 9.5% a record shattering event for a series that previously not dropped more than 1% in a month. Nondurable goods spending rose a record breaking 4.3%, as consumers stocked up on food and medicines. The savings rate jumped to 13.1% in March from 8% in February as income fell far less than spending. Inflation remains weak as the PCE deflator fell 0.3% in March after rising 1% in February. The core rate declined 0.1%. Deflation will be a worry in the current environment. However, core inflation has not declined on a year ago basis since the late 1950s but alarm bells might be going off at the Fed.

Construction spending surprised on the upside in March, rising 0.9%. Residential construction drove the increase, rising 2.3% as spending on home improvements surged. Total nonresidential construction spending was largely unchanged, falling 0.1%. Public construction spending surged 1.6% after falling in February. All told, total construction spending was up 4.7% from a year earlier. The future looks much darker. Consumer confidence has crashed and with it the residential market will also decline sharply. Businesses will pull back and the hit from the oil field will be big in the nonresidential sector. State and local government budgets have been hit, so future public spending will be cut. An infrastructure package is unlikely to pass before the next election. Construction activity will fall sharply in the near term but should solidify in 2021-22.

The April ISM manufacturing survey is even worse than it appears. The index fell from 49.1 in March to 41.5 in April. A surge in supplier deliveries, increasing from 65 to 76, limited the decline in the index. The gain likely was attributed to the closure of nonessential businesses and supply chain disruptions. New orders dropped from 42.2 in March to 27.1 in April. Of the 18 manufacturing industries, only two reported growth in new orders. Production fell from 47.7 in March to 27.5 in April. Employment came in at 27.5 in April, compared with 43.8 in March and the lowest reading since the early 1980s. Inventories increased from 46.9 to 49.7. Prices paid declined from 37.4 to 35.3. New export orders fell from 46.6 to 35.3. New import orders rose from 42.1 to 42.7. U.S. manufacturing is being hit by the coronavirus and it’s unclear what the strength of the recovery will be. Plants are scheduled to restart in May and they will likely have strict health protocols in place. Supply chain disruptions are unlikely to improve quickly. Manufacturing, like the U.S. economy, will not be able to turn a switch and turn on. Manufacturing will depend on the consumer, who is likely to be cautious for several months. It could be normal activity will be restrained util there is wide availability of a vaccine. That event would boost the economy significantly, but the timing is unknown.


German unemployment soared in April, while monthly retail sales declined at the fastest rate in 13 years, as the coronavirus lockdown hit Europe’s largest economy hard. The number of people out of work rose by 373,000 to 2.639 million, the Labor Office said. That raised the unemployment rate to 5.8% from 5.0% the month before. The Statistics Office showed that retail sales fell by 5.6% in March and were down 2.8% from the year. The Statistics Office said that higher sales in supermarkets and chemists, which remained open during the shutdown, offset the losses elsewhere.  Germany s braced for the deepest recession since World War II, as the shutdown shuttered many shops, businesses and factories. However, a gradual lifting of restrictions has started.

The Caixin China manufacturing PMI slipped from 50.1 in March to 49.4 in April. Production increased after the record decline in February. However, new orders fell for a third consecutive month, largely driven by weaker foreign demand. New export orders feel at the steepest rate since December 2008, as the COVID-pandemic led to temporary lockdowns and business closures across the globe. Reduced work led firms to cut staff numbers again in April. Inventories rose but the increase was marginal. Input costs dropped markedly. Chinese manufacturers are going back to work but the effect of the virus in Europe and the U.S. has hurt new orders and production. New stimulus efforts are needed until the global economy starts to boost production before the global economy turn upward.

Important Data Releases This Week

The March factory orders will be released on Monday, May 4 at 10:000 AM. The already released durable goods orders were disastrous, felling 14.4% in March. The decline was heavy n transportation, while core capital goods orders held up, rising 01%. The hit from nondurable good is less than durables as some industries, such as food are dig okay. Factory orders are projected to fall 10% for March.

 March trade deficit will be released Tuesday, May 5 at 8:30 AM. The advance trade in goods showed steep declines in both exports and imports, but the export decline was larger. The goods deficit rose from $59.9 billion in February to $64.2 billion in March. A similar pattern will follow then total trade deficit number.

The April ISM non-manufacturing index will be released on Tuesday, May 5 at 10:00 AM.  The service barometer will follow its manufacturing cousin sharply lower to near 44.

The April payroll will be released on Friday, May 8 at 8:30 AM.  Initial claims suggest that 26.5 million Americas were laid off in the five weeks since the March survey. 701,000 Americans lost their job last moths and 22 million will be lost in the April report. The unemployment rate should come in over 15%.

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Category: Monday Morning Coffee

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.