The U.S. and Western Europe’s Economies, As Well As Much of the World are in a Deep Recession

By | April 6, 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.


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European stocks sank on Friday, erasing small gains for the week, as more companies flagged a hit to business from the pandemic.  Meantime, oil prices extended their previous day’s gain on hopes of a global supply cut. With more than a million infected worldwide, there were more signs the pandemic would take a massive toll on economic growth. Morgan Stanley said the U.S. economy would shrink 5.5% in 2020, the steepest drop since 1946, with a huge 38% annualized contraction predicted for the second quarter.

Oil prices have stabilized after U.S. President Donald Trump said he spoke to Saudi Prince Mohammed bin Salman and he expects Riyadh and Moscow to cut output by as much as 10 million to 15 million barrels. U.S. stocks ended the week with relatively moderate declines, considered the “new-normal” in these days of high volatility on most days of the coronavirus. The Dow Jones Industrial Average fell 361 points, or 1.7% on Friday to close at 21,052.53. The Dow was down 2.7% from a week earlier and down 28.8% from its closing high on Feb.12. The S&P lost 1.5% on Friday and fell 2.1% for the week. The S&P is down 26.5% from its closing high on Feb.19.

Data from last week began to show how large the coronavirus related impact on the economy is. Efforts to contain the virus are leading to millions of job losses and it’s likely only a matter of time before economic data reveals unprecedented declines. Employers reported payrolls declined by 701,000 in March. This decline came before the worst of the coronavirus related impacts had on a once strong labor market. Job losses will be in the millions in April. There was a little better news form the ISM’s manufacturing and non-manufacturing surveys. Both indexes did not decline as deeply as expected. That was because the supplier delivery indexes jumped in March, usually a positive sign for economic growth. However, in this case the increase in supplier delivery indexes was driven by the disrupted supply chains, hit while China was suffering through its virus-impact.

The U.S.  and Western Europe’s economies, as well as much of the world are in a deep recession. The Eurozone manufacturing and service PMI were revised lower to 44.4 and 26.4 in March. The U.S. manufacturing PMI fell from 50.1 to 49.1, while the non-manufacturing PMI declined from 57.3 to 52.5. Again, the indexes were held up by the jump in supply deliveries. They will fall further in April. The only good recent news is that the Chinese manufacturing and services did jump in March after they began going back to work after the virus impact. China’s manufacturing PMI jumped 16.3 points and the services PMI also rose modestly. Aided by the stimulus bill passed by Congress, economic activity should start to rebound in Q3. That is, of course if the virus is contained and the number of infected starts to decline. The recovery is likely to be slow. The consumer’s financing must be mended before there will be any commitment to big-ticket items. Investment in cars and housing may take time. There will be some pent-up-demand and perhaps, some big quarters of spending, but reconstructing the labor market and building confidence may be prolonged. A vaccine would be ideal to spark a real recovery. That is likely a year away, but that would mark a real turning of the tide against this disease.


Next week, economic data is limited and investors will be looking for news of the virus. Weekly jobless claims will be watched.

Latest Data

The U.S. Economy:

Construction spending fell 1.3% in February, with weakness across nearly all segments. Private residential construction fell 0.6% but remained up 11.3% from a year earlier. New single-family construction spending increased 3.9% m/m and was up 16.1% y/y. Spending on new multifamily units rose 0.1% in February but was 5.7% below a year earlier. Private nonresidential construction spending fell 1.8% in February but was up 2.5% from a year earlier. Public construction fell 1.5% for the month but was up 7.2% for the year. The federal government has not yet issued specific mandates so states and cities are issuing their own. Certain states and localities have allowed work on essential infrastructure and construction for the public health emergency. The COVID-19 outbreak will likely lead to lower construction spending in coming months. President Trump called for a new infrastructure worth $2 trillion, up $500 billion from the 2018 proposal. The odds of that idea sailing through Congress seems an upside risk, given the increase in the deficit in the stimulus bill just passed.

The ISM manufacturing index fell from 50.1 in February to 49.1 in March, better than expected. The index was largely held up by a jump in supplier deliveries and other details were weaker. New orders dropped from 49.8 to 42.2. of the 18 manufacturing industries, nine reported growth in new orders, compared to 16 in February and 10 in January. The production index fell from 50.3 to 47.7. According to the ISM, an index reading of 51.7 over time is consistent with an increased in the Federal Reserve’s industrial production index. There were seven industries reporting growth in production in March and five that said production fell. The employment index fell from 46.9 to 43.8. Only three industries reported an increase in employment in March. The supplier deliveries index jumped from 57.3 to 65 in March. A reading below 50 indicates faster deliveries. Disruptions in supply chains are causing problems with manufacturers. The inventory index rose from 46.5 to 46.9. The prices paid index dropped from 45.9 to 37.4. new export orders declined from 51.2 to 46.6. New import orders edged lower from 42.6 to 42.1.

Although the manufacturing index held up better than expected in March, the rest of the year will be difficult for manufacturing. The coronavirus has disrupted global supply chains and cased auto manufacturing plants to shutter plants in the U.S. Adding to the headwinds, a global recession and Boeing’s decision to halt production of the 737 MAX in January and a strong dollar, manufacturing will continue to struggle.  The plunge in oil prices is another pressure on industrial production. Moody’s expects industrial production to fall 2.8% this year. Their forecast calls for real GDP to fall 2.5% in Q1 and 18.3% in Q2. However, if the coronavirus infections peak in May and start to decline in July, a bounce back in economic activity will be present in the second half of the year. For the year, Moody’s projected a 2.2% decline in real GDP, the second largest decline since 1948 and trailing only the 2.5% drop in 2009.

Vehicle sales dropped precipitously in March in response to the COVID-19 virus. Sales dropped to 10.7 million, a year-over-year decline of 38.5%. Sales equaled an annual pace of 17.1 million in February. Sales of light trucks decreased to 8 million, down 38.1% year-over-year, off 5.2 million annualized from February. Sales of cars fell 46.3% to 2.8 annualized units Vehicle sales in 2020 will be the lowest since the Great Recession. April sales will be very weak. When the virus is contained and Americans go back to work, spending on big ticket items is likely to be slow in coming back. A full rebound may take several years.

The ISM non-manufacturing index held up well in March, but the near-term outlook is grim. The index fell from 57.3 in February to 52.5 in March, still above the 50 mark that indicates expansion. Despite the cheery topline number, some of the components suggest that COVID-19 is putting a strain on activity. Business activity fell from 57.8 to 48, the first reading below 50 since 2009. Only five industries indicated growth. New orders dropped 10.2 percentage points to 52.9 in March. Five industries reported growth in new orders. The employment index fell 8.6 percentage points to 47. Only two industries reported gains in employment. The supplier delivery index jumped 9.7 percentage points to 62.1. This was the biggest monthly change since September 1997. The ISM noted that the improvement came from supply problems emanating from the OVID-19’s impact on China and its supply chains.  The index will likely weaken significantly in the near-term.

The nominal trade deficit narrowed from $45.3 billion in January to $39.9 billion in February. Nominal imports dropped 2.5%, the second consecutive monthly decline. Nominal exports slipped 0.4%. There was a sizable narrowing in the trade deficit with China likely because of supply chain disruptions caused by COVID-19. The February trade deficit suggest that net exports were positive for GDP growth before COVID-!( caused parts of the economy to suddenly stop in March. The impact of the virus will more visible in March and coming months. Trade will be weak as the global economy is entering recession.  The extreme drop in March came as the two first weeks were business-as-usual for most Americans.


The March employment report was shocking. Payroll employment fell by 701,000 jobs, far more than expected. This decline occurred before many states had instituted shutdowns. The unemployment rate shot up to 4.4%. This month ended a 10-year expansion of the labor market. April’s rate could be 10 times worse. Losses were broad bases across industries. Leisure/hospitality shed 459,00 jobs. Retailers shed a tenth as many jobs, although that number will climb in April. The household data painted an even worse picture. Household employment fell by 3 million. The labor participation rate fell by 0.7 percentage points to 62.7%. The size of the labor force shrank by 1.6 million. Job losses could be 10 times greater in April. The March report was worse than expected, but it was concentrated in leisure/hospitality. The only good statistic was the increase in temporary unemployed was higher than the permanently unemployed, meaning that once shutdowns end, they should be rehired quickly. The economy should start to rebound in the second half of the year. Making up the labor losses may take longer than anticipated.


China’s official Manager’s Index (PMI) rose to 52 in March from a record low 35.7 in February, a point above the 50 ark that means expansion. The National Bureau of Statistics cautioned the surprise year-over-year rebound in the PMI from its record low base in February to not signal a rebound in economic activity. The pandemic’s sweeping impact on production was underlined in two of Asia’s main export engines, Japan and South Korea. In Japan, industrial production slowed in February and production in South Korea plunged to the lowest level in 11 years. China’s sub-index of manufacturing picked up to 54.1 in March from February’s 27.8 and new export orders did reach 46.4 from 28.7 in February. However, the outlook for export orders is weak, as the global economy weakens under the impact of the virus. Stimulus efforts helped the service did increase the service PMI to 52.3 in March from 29.6 in February. However, the recovery may be weak because of lingering fears of the virus.


The global coronavirus has caused manufacturing conditions to fall sharply in March. The IHS manufacturing index fell from February’s one-year high of 49.2 to 44.5 in March, the lowest reading in 92 months. The latest data showed all market groups registering in operating conditions compared to February. All country levels in the eurozone were lower in March than in February. At the aggregate level, the deterioration in manufacturing was the greatest since April 2009. New orders fell to the lowest level in just under 11 years. Export trade fell for an 18th consecutive month. Average lead times fell at the greatest degree in nearly 23 years of data. Employment fell at the sharpest level in a decade. The future is not bright. In addition to many factories shutting their doors, the future it from lower consumer spending and rising unemployment will hit demand for a variety of products. The only exception is food manufacturing and pharmaceuticals. Elsewhere, large proportions of manufacturing could see a downturn of historic dimensions.

Important Data Releases This Week

March PPI will be released on Thursday, April 5 at 8:30 AM. Inflation is weak, slowed by lower energy prices and a general global weakness in industrial commodities. The PPI fell 0.6% in February.


March PPI will be released on Friday, April 6 at 8:30 AM. Headline consumer prices likely slowed in March, aided by falling energy prices. Inflation will be weak the next few months.

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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.