Consumer and Business Sentiment is Tested: March 9 – 13

Data released last week show COVID-19’s early impact on consumer and business owner sentiment. Here are the five things we learned from U.S. economic data released during the week ending March 13.

#1Consumer sentiment took a hit in early March. The preliminary March reading of the Index of Consumer Sentiment from the University of Michigan came in at 95.9 (1966Q1=100). This was down 5.1 points from the final February reading and 2.5 points from a year earlier. The current expectations index pulled back 2.3 points to 112.5 (May 2019: 113.3), while the expectations index shed 6.8 points to 85.3. The press release stated that “the initial response to the pandemic has not generated the type of economic panic among consumers” in comparison to the start of the 2008 Great Recession (although data collection for these results did not reflect the impact of this past week’s news). Also interesting is that the data suggest most consumers believe any negative impact on their finances would be temporary. However, it worth watching to see if that sanguine view holds up in the coming weeks and months.

#2Small business owners remained optimistic…at least in early-to-mid February. The Small Business Optimism Index from the National Federation of Independent Business eked out a 2/10ths of a point gain in February to a seasonally adjusted reading of 104.5 (1986=100). The index has been above 100 for 39 straight months and was 3.8 points above its year-ago reading. A closer look at the index components paints a more mixed picture, however. Just four of ten components improved: expectations of the economy to improve, plans to increase employment, expected credit conditions, and current job openings. The other six components pulled back, including expected real sales, whether it is a good time to expand, plans to increase inventories, and plans to make capital outlays. The press release noted that “February was another historically strong month for the small business economy,” but also stressed that the survey closed before “the recent escalation of the coronavirus outbreak and the Federal Reserve rate cuts.”

#3Consumer prices edged up in February. The Bureau of Economic Analysis reports that the Consumer Price Index (CPI) grew a seasonally adjusted 0.1 percent during the month, matching January’s gain and down from the 0.2 percent advance during the three months before that. Food CPI jumped 0.4 percent, with increases in five of six major grocery categories (fruits/vegetables were the exception). Energy CPI declined 2.0 percent, with gasoline prices off 3.4 percent. Core CPI increased by 0.2 percent for the third time in four months. Rising were prices for used cars/trucks (+0.4 percent), apparel (+0.4 percent), shelter (+0.3 percent), transportation services (+0.3 percent), health care services (+0.3 percent), and new automobiles (+0.1 percent). Health care commodities prices declined by 0.6 percent. Over the past year, headline CPI has risen 2.3 percent while the 12-month comparable for core CPI was +2.4 percent. 

#4Wholesale prices fell in February. Final demand Producer Price Index (PPI) slumped a seasonally adjusted 0.6 percent during the month, its largest single-month drop in five years. The Bureau of Labor Statistics’ core wholesale price measure, which removes the impact of food, energy, and trade services, decreased 0.1 percent (its first decline since last June). PPI for final demand goods plummeted 0.9 percent (its biggest drop since September 2015) with declines for energy (-3.6 percent), food (-1.6 percent), and core goods (-0.1 percent). PPI for final demand cooled 0.3 percent, which included the impact of the 0.7 percent decline in trade services (i.e., retailer and wholesaler margins). Headline PPI has grown a relatively modest 1.3 percent over the past year while the core measure has risen 1.4 percent.

#5…as did both import and export prices. The Bureau of Labor Statistics finds import prices declining 0.5 percent in February, its most significant drop since last August. Much of the fall resulted from a sharp 7.7 percent reduction in imported fuel prices (petroleum: -7.7 percent, natural gas: -12.4 percent). Net of fuel, core import prices grew 0.3 percent, boosted by nonfuel industrial supplies/materials, foods/beverages, and capital goods. Meanwhile, export prices fell 1.1 percent, with prices for agricultural exports dropping 2.7 percent (hurt by declines for vegetables, soybeans, and meat). (Note that the import and export price measures do not reflect any seasonal adjustments). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 7, 2020, First-Time Claims, seasonally adjusted): 211,000 (-3,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 214,000, -2.6% vs. the same week a year earlier).
Monthly Treasury Statement (February 2020—First 5 Months of FY2020, Federal Government Budget Surplus/Deficit):  -$622.5 billion (vs. FY2019: -$544.2 billion).

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.