Layoffs Skyrocketed in Mid-March: March 23 – 27

The first set of data reflecting the impact of the COVID-19 pandemic—jobless data—came out last week. Here are the five things we learned from U.S. economic data released during the week ending March 27.

#1COVID-19 layoffs led to a record number of jobless claims. The Department of Labor reports there were a seasonally adjusted 3.283 million first-time claims made for unemployment insurance benefits during the week ending March 21. The number of initial claims was up by more than 3 million filings from the prior week, 1,164 percent from the same week a year ago, and shatters the previous record of 695,000 claims back in October 1982. The press release noted that job cuts came from many industries, including the service sector (“particularly accommodation and food service”), health care/social assistance, arts/entertainment/recreation, transportation/warehousing, and manufacturing industries. As large as the number was, the data likely are underestimating actual layoff activity (due to capacity issues on claim filing websites and not all laid-off workers being aware of their eligibility for benefits).

#2Growth in personal income held steady in February but sputtered for personal spending. The Bureau of Economic Analysis reports that personal income rose at a seasonally adjusted 0.6 percent in February, matching the previous month’s growth rate. Disposable personal income—which nets out personal taxes—jumped 0.5 percent during the month with the “real” measure—which adjusted for inflation—increased 0.4 percent. Personal consumption expenditures (PCE) grew by a more modest 0.2 percent (matching January’s increase) while real PCE inched up 0.1 percent. Real spending on goods fell by 0.2 percent, including durable goods expenditures slumping 0.7 percent. Edging up was real spending on nondurable goods (+0.1 percent) and services (+0.2 percent). The savings rate bloomed by 3/10ths of a percentage point to +8.2 percent (its highest reading since last March). Over the past year, real disposable income has risen 2.2 percent, while the 12-month comparable for real spending was +3.0 percent.

#3Meanwhile, economic activity picked up in February. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, added 49-basis points during the month to a reading of +0.16 (its best mark since last November and indicative of economic growth higher than the historical average). Forty-four of the 85 indicators made positive contributions to the CFNAI, with the other 41 measures having negative impacts on the headline index. Also, all of the advance came from production-related indicators, with much smaller positive contributions coming from indicators tied to employment and personal consumption/housing. Measures linked to sales/orders/inventories made a small negative contribution. The CFNAI’s three-month moving average deteriorated by ten-basis points to -0.21. The Federal Reserve Bank of Chicago’s website included this statement: “The data through February were unlikely to have been affected much by the COVID-19 outbreak.” This will not be true for March’s report. 

#4Q4 2019 was likely the final quarter of economic growth for a while. The Bureau of Economic Analysis’ final estimate of Gross Domestic Product (GDP) for the last three months of 2019 finds the U.S. economy expanded 2.1 percent on a seasonally adjusted annualized basis. This matched the two previous estimates of Q4 GDP growth and followed growth rates of +2.1 percent and +2.0 percent during the two prior quarters. GDP increased 2.3 percent for all of 2019, down from gains of 2.9 percent in 2018 and 2.4 percent in 2017. The same report shows corporate profits grew an annualized 2.6 percent in Q4 after contracting 0.2 percent during the prior quarter. For all of 2019, corporate profits were flat when compared to 2018. We will see the first estimate of Q1 data—the first GDP report reflecting coronavirus impacts—on April 29.

#5New home sales slowed in February. The Census Bureau estimates new home sales declined 4.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 765,000 units. Despite the decline, sales were 14.3 percent above year-ago levels. February sales slumped in the West (-17.2 percent) and Midwest (-7.3 percent) but advanced in the Northeast (+38.9 percent) and South (+1.0 percent). All four Census regions enjoyed year-to-year sales increases. There were 319,000 homes available for sale at the end of the month, off 0.9 percent for the month and 6.7 percent from a year earlier. This was the equivalent to a 5.0 month supply of homes. 

Other U.S. economic data released over the past week:
FHFA House Price Index (January 2020, Purchase-Only Index, seasonally adjusted): +0.3% vs. December 2019, +5.2% vs. January 2019.

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

Bracing for a Halt: March 16 – 20

This past week’s jobless claims data is only a taste of what is about to come. Here are the five things we learned from U.S. economic data released during the week ending March 20.

#1Jobless surged in mid-March, and that was only the tip of the iceberg. The Department of Labor reported that there were a seasonally adjusted 281,000 first-time claims made for unemployment insurance benefits during the week ending March 14. The surge of 70,000 applications from the prior week was the fourth largest jump in the 53-year history of the data series. The four-week moving average of first-time claims jumped by 16,500 to 232,250. Next week’s claims data will be historic as the full force of COVID-19 business shutdowns shows up, with some forecasters anticipating next week’s estimate showing two or three million claims. The DOL press release noted that many states reported pandemic-related layoffs with the impact centered on “service related industries broadly and in the accommodation and food services industries specifically, as well as in the transportation and warehousing industry.”

#2The Fed cut its short-term interest target to near zero percent and took other actions to support the credit markets. The Federal Open Market Committee (FOMC) canceled its two-day meeting scheduled for last week but voted to cut its fed funds target rate by a full percentage point to a range between 0.00 and 0.25 percent. This followed a half-percentage point cut earlier in the month. The statement noted that “the coronavirus outbreak has harmed communities and disrupted economic activity.” The FOMC expects to maintain this target rate until “it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Other steps taken by the Fed include an asset purchasing program for Treasury and mortgage-backed securities, the creation of a facility to inject liquidity into the money market fund market (including those linked to short-term state and municipal securities), and an expansion of its overnight and term repurchase agreement operations.

#3Leading indicators edged up in February for a final hurrah. The Conference Board’s Leading Economic Indicators added 1/10th of a point during the month to a reading of 112.1 (2016=100), following an 8/10ths of a point advance in January. Only four of the LEI’s ten components made positive contributions. The coincident index advanced by 3/10ths of a point to 107.6 while the lagging index rose by 4/10ths of a point to 109.1. The subhead of the press release said it all: “Improvement in [the] Index Will Not Continue into March.” Noting the sharp declines in the stock prices, consumer sentiment, and hours worked, the press release concluded that “the economy may already be entering into a period of contraction.” 

#4Retail sales fell in February. The Census Bureau indicates that U.S. retail and food services sales dropped 0.5 percent during the month to a seasonally adjusted $528.1 billion. Some of the softness came from weakness at auto dealers/parts stores (-0.9 percent) and gas stations (with lower prices pulling down sales 2.8 percent). But even core retail sales were off 0.2 percent from January. There was weakness across most retail sectors; including, electronics/appliance stores (-1.4 percent), building materials retailers (-1.3 percent), apparel stores (-1.2 percent), restaurants/bars (-0.5 percent), furniture retailers (-0.4 percent), and department stores (-0.2 percent). Retail sales were up 4.3 percent from a year earlier, with core sales having a 12-month comparable of +4.4 percent.

#5Manufacturing output continued struggling in February. Even though the Federal Reserve finds manufacturing production grew a seasonally adjusted 0.1 percent during the month, with output 0.4 percent below that of a year earlier. Durable goods production gained 0.3 percent, boosted by motor vehicle production, while nondurables output declined 0.1 percent, pulled down by textiles, petroleum/coal products, and chemicals. Overall industrial production rose 0.6 percent in February, matching its year-ago level. Mining output slumped 1.5 percent while utility output surged 7.1 percent (with both electric and gas utilities reporting large increases).

Other U.S. economic data released over the past week:
Existing Home Sales (February 2020, Sales of Previously Owned Homes, seasonally adjusted annualized rate): 5.77 million units (+6.5% vs. January 2020, +7.2% vs. February 2019).
Job Openings and Labor Turnover (January 2020, Nonfarm Job Openings, seasonally adjusted): 6.963 million (+411,000 vs. December 2019, -557,000 vs. January 2019).
Business Inventories (January 2020, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.035 trillion (-0.1% vs. December 2019, +1.1% vs. January 2019).
Housing Market Index (March 2020, Index (>50=More Homebuilders Viewing Housing Market as “Good” vs. Being “Poor,” seasonally adjusted): 72 (vs. February 2020: 74, vs. March 2019: 62).
Treasury International Capital Flows (January 2020, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$28.0 billion (vs. December 2019: +$65.7 billion, vs. January 2019: -$24.8 billion).

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

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.