GDP, Income, and Spending Plummet: April 27 – May 1

The shutdown late in Q1 inflicted significant damage. Here are the five things we learned from U.S. economic data released during the week ending May 1.

#1The shutdown ended GDP’s winning streak. The Bureau of Economic Analysis’ first estimate of Q1 Gross Domestic Product (GDP) has the U.S. economy contracting 4.8 percent on a seasonally adjusted annualized basis. This was the first quarterly decline in GDP in six years and the most significant contraction in economic activity since the fourth quarter of 2008. Of major GDP components, only fixed residential investment (housing), net exports (mainly because of a sharp drop in imports), and government expenditures made positive contributions. Falling consumption cost 5.26 percentage points in GDP growth, with a sizable portion of that coming from reduced spending on medical services (itself costing 225-basis points in GDP growth), followed by the declining expenditures on food services/accommodations, recreation services, clothing, and transportation services. The BEA will update its Q1 GDP twice over the next two months.

#2Personal income and spending tumbled in March. The Census Bureau reports that personal income dropped 2.0 percent on a seasonally adjusted basis during the month, its largest single-month decline in seven years. Disposable income suffered a matching 2.0 percent loss while real disposable income (which controls for inflation) fell 1.7 percent. (Note that as large as these declines are, they mostly reflect a slowdown in activity that occurred only during the latter half of the month.) Personal spending dove 7.5 percent (the biggest single-month drop in the 61-year history of the data series), with the inflation-adjusted measure off 7.3 percent. Real spending on goods slowed 2.2 percent, split by a 14.8 percent drop for durable goods and a 4.3 percent advance for nondurables. Spending on service fell 9.5 percent (hurt particularly by reduced expenditures on health care, food services/accommodations, and recreation services). The savings rate surged by 5.1 percentage points to 13.1 percent (its highest point since 1981). 

#3The Federal Reserve sees the economic impact of COVID-19 not to be short-lasting. The opening sentence of the Federal Open Market Committee’s (FOMC) statement following its meeting last week was clear on its mission, noting that it “is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.” The statement added that the pandemic “poses considerable risks to the economic outlook over the medium term.” The committee voted unanimously voted to keep the fed funds target rate near zero percent, stating that it “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Also, the Fed will continue to purchase both Treasury securities and residential & commercial mortgage-backed securities. At the same time, the Open Market Desk will maintain its expanded overnight and term repurchase agreement operations. 

#4The contraction of the manufacturing sector was widespread in April. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, lost 7.6 points to 41.5, its lowest reading since the depths of the Great Recession (April 2009). A PMI reading below 50.0 indicates a contracting manufacturing sector, and a reading below 42.8 suggests the U.S. economy is in a recession. All five components to the PMI also showed a slowdown in business activity. Only two manufacturing industries reported growth in April: paper products and food/beverages. The press release noted that “transportation equipment and fabricated metal products [were] the weakest of the big six sectors” of manufacturing.

#5Consumer sentiment plunged in April, but the outlook brightened a bit. The Conference Board’s Consumer Confidence Index plummeted 31.9 points during the month to a seasonally adjusted 86.9 (1985=100). The present conditions index, which captures survey respondents’ “assessment of current business and labor market conditions—suffered its largest ever decline, shedding 90.4 points to 76.4. The expectations index added 7.0 points to a reading of 93.8, reflective of some consumers’ belief (hope) of an easing of stay-at-home edicts. In March, 39.2 percent of survey respondents had seen then-current economic conditions as “good.” This percentage plummeted to 20.8 percent in April. The percentage of consumers seeing conditions as “bad” surged from 11.7 percent to 45.2 percent. Interestingly, consumers were much more optimistic about the future, with 40.0 percent expecting business conditions to improve (versus 18.7 percent in March). Also growing, however, was the percentage of respondents expecting conditions to worsen (25.7 percent versus 16.4 percent in March). 

Other U.S. economic data released over the past week:
Jobless Claims (Week ending April 25, First-Time Claims, seasonally adjusted): 3,839,000 (-603,000 vs. the previous week, +3,609,000 vs. the same week a year earlier). 4-week moving average: 5,033,250 (+2235.6% vs. the same week a year earlier).
Construction Spending (March 2020, Value of Construction Put in Place, seasonally adjusted annualized rate): 1.361 trillion (+0.9% vs. February 2020, +4.7% vs. March 2019).
Pending Home Sales (March 2020, Index (2001=100), seasonally adjusted): 88.2 (-20.8% vs. February 2020, -16.3% vs. March 2019).
Agricultural Prices (March 2020, Prices Received by Farmers): +3.1% vs. February 2020, Unchanged vs. February 2019.

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

The Bumpy Road Ahead: April 20 – 24

The impact of COVID-19 continued to ripple through the U.S. economy. Here are the five things we learned from U.S. economic data released during the week ending April 24.

#1The U.S. economy was in total freefall in March. The Chicago Fed National Activity Index (CFNAI) plummeted by 423-basis to a reading of -4.23. The weighted index of 85 indicators (set such that 0.00 indicates a U.S. economy expanding at its historical rate) was at its third lowest reading in its 53-year history. Only 18 of the 85 indicators made a positive contribution to the CFNAI, while 65 others made negative contributions. Among the four major categories of indicators, those suffering vast declines were those tied to production (making a -2.72 contribution to the CFNAI) and employment (-1.23). Indicators linked to personal consumption (-0.19) and sales/orders/inventories (-0.05) each had relatively modest negative impacts. The CFNAI’s three-month moving average slumped to -1.47, well below the -0.70 reading that typically signals a recession.

#2First-time jobless claims continued at a historic rate. The Department of Labor reports that there were a seasonally adjusted 4.427 million first-time claims made for unemployment insurance claims during the week ending April 18. This was a decline of 810,000 from the prior week but also was 1,859 percent above the count of first-time claims during the same week a year earlier. The first-time claims’ four week-moving average of 5,786,500 was 2,646 percent ahead of that a year earlier. Continuing jobless claims surged by 4.064 million during the week ending April 11 to 15,976,000, up an extraordinary 963 percent over the previous year. The insured unemployment rate was 11.0 percent, compared to just 1.2 percent as recently as a month ago.

#3Consumer sentiment appears to have stabilized during the latter half of April. The University of Michigan’s Index of Consumer Sentiment ended the month at a seasonally adjusted reading of 71.8 (1966Q1=100). While down a startling 17.3 points from March and 25.4 points from a year earlier, the index managed to improve by 8/10ths of a point from its mid-April reading. The current conditions index shed 29.6 points from March to 103.7 (April 2019: 112.3), while the expectations measure lost 9.6 points during the month to 70.1 (April 2019: 87.4). The press release notes that consumers will be paying close attention to the handful of states that will attempt to reopen, noting that “an incorrect decision to reopen [would have] serious repercussions” that “could cause a deeper and more lasting pessimism.” 

#4Durable goods orders plummeted in March, but core goods held relatively steady. The Census Bureau places its estimate of new orders for manufactured durable goods at a seasonally adjusted $213.2 billion down 14.4 percent from February. Transportation goods orders were in a freefall—decreasing 41.0 percent—thanks to civilian aircraft orders declining -295.7 percent (including a massive number of order cancellations) and an 18.4 percent drop in motor vehicle orders. Net of transportation goods, core durable goods slowed by a far more modest 0.2 percent. While communications equipment orders gained 3.7 percent, transactions declined for primary metals (-2.5 percent), fabricated metal products (-0.5 percent), machinery (-0.2 percent), and computers/electronics (-0.1 percent).

#5Sales of previously owned homes fell in March but stayed above year-ago levels. The National Association of Realtors reports that existing home sales slowed 8.5 percent during the month to a seasonally adjusted annualized rate of 5.27 million. Despite the drop, home sales were 0.8 percent ahead of year-ago levels. Sales fell during the month in all four Census regions: West (-13.6 percent), South (-9.1 percent), Northeast (-7.1 percent), and Midwest (-3.1 percent). There were 1.50 million unsold homes on the market at the end of March (+2.7 percent vs. February 2020, -10.2 percent vs. March 2019), the equivalent to a 3.4-month supply. The median sales price of $280,600 was up 8.0 percent from a year earlier. 

Other U.S. economic data released over the past week:
New Home Sales (March 2020, New Home Sold, seasonally adjusted annualized rate): 627,000 (-15.4% vs. February 2020, -9.5% vs. March 2019).
FHFA House Price Index (February 2020, Purchase-Only Index, seasonally adjusted): +0.7% vs. January 2020, +5.7% vs. February 2019.

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

One Word About the Latest Economic Data: Oof. April 13 – 17

The COVID-19 pandemic led to many broken economic data records…none of them good. Here are the five things we learned from U.S. economic data released during the week ending April 17.

#1Forward-looking economic indicators suffered its biggest decline ever in March. The Conference Board’s Leading Economic Index (LEI) shed 6.7 percent during the month to a seasonally adjusted reading of 104.2 (2016=100). This was the LEI’s largest single-month decline in the measure’s 60-year history. Seven of ten LEI components pulled down the headline index, led by jobless claims, stock prices, and building permits. The coincident index lost a full point to a reading of 106.6, hurt by components tied to industrial production and nonfarm payrolls. The lagging index jumped 1.2 percent to a reading of 110.2 (but then, it is a backward-looking measure). In noting a “halting in business activity,” the press release states the “sharp drop” in the LEI “suggests the U.S. economy will be facing a very deep contraction.”

#2Jobless claims fell but remained hugely inflated. The Department of Labor reports there were a seasonally adjusted 5.245 million first-time claims made for unemployment insurance benefits during the week ending April 11, down 1.37 million from the prior week but still the third most ever and up 2,484 percent from a year ago. There were 11.976 million continuing jobless claims during the week ending April 4 (+618 percent versus a year earlier). This translated into an insured unemployment rate 8.2 percent, well above the 1.2 percent reported for the same week one year ago. 

#3Sales plunged at most retailers in March. Retail and food services sales hemorrhaged 8.7 percent during the month to a seasonally adjusted $483.1 billion (itself 6.2 percent below its year-ago pace). (This was the biggest decline for the Census Bureau measure going back to its inception in 1992.) Among the retail categories seeing large declines were auto dealers/parts stores (-25.6 percent) and gas stations (17.2 percent, partially due to sharply lower prices at the pump). Net of both autos and gas, core retail sales fell 3.1 percent. Among the big decliners were retailers focused on apparel (-50.5 percent), furniture (-26.8 percent), sporting goods/hobbies (-23.3 percent), and electronics/appliances (-15.1 percent). Restaurants/bars reported a 26.5 percent drop in sales. On the flip side, other segments reported sales gains; including, grocery stores (+26.9 percent), general merchandisers (+6.4 percent), health/personal care retailers (+4.3 percent), and building materials/garden stores (+1.3 percent). Nonstore (e.g., online) retailers saw sales jump 3.1 percent. 

#4Industrial production hit a wall in March. The Federal Reserve finds industrial production slowed a seasonally adjusted 5.4 percent during the month, its largest decline since January 1946(!). Manufacturing output sank 6.3 percent (the most significant decline since February 1946), with reductions for durable and nondurable goods of 9.1 percent and 3.2 percent, respectively. Automobile production fell 28.0 percent. Utilities output dropped 3.9 percent in March (electric utilities: -3.8 percent; natural gas utilities: -4.5 percent). Mining output declined 2.0 percent, with significant decreases seen for crude oil, natural gas liquids, and coal. Industrial production was 5.5 percent below that of a year earlier with manufacturing’s 12-month comparable at -6.6 percent.

#5Housing starts plummeted in March. The Census Bureau estimates that housing starts fell 22.3 percent during the month to a seasonally adjusted annualized rate of 1.216 million units. Despite being the measure’s largest drop in 36 years, starts were still 1.4 percent ahead of their year-ago pace. Single-family homes starts slumped 17.5 percent in March while those for multi-family units plunged 32.1 percent. Looking towards the future, the annualized count of issued building permits dropped 6.8 percent to 1.353 million, including a 12.0 percent fall for single-family home permits. Housing completions declined 6.1 percent to 1.227 million (9.0 percent vs. March 2019). 

Other U.S. economic data released over the past week:
Import Prices (March 2020, All Imports): -2.3% vs. February 2020, -4.1% vs. March 2019. Nonfuel Imports: Unchanged vs. February 2020, -0.5% vs. March 2019.
Export Prices (March 2020, All Exports): -1.6% vs. February 2020, -3.6% vs. March 2019. Nonagricultural Exports: -1.5% vs. February 2020, -3.7% vs. March 2019.
Housing Market Index (April 2020, Index(>50= More Homebuilders View Conditions as “Good” than “Poor,” seasonally adjusted): 30 (vs. March 2020: 72, vs. April 2019: 62).
State Employment (March 2020, Nonfarm Payrolls, seasonally adjusted): vs. February 2020: Decreased in 31 states and was essentially unchanged in 19 states and the District of Columbia. Vs. March 2019: Increased in 13 states, decreased in 2 states, and was essentially unchanged in 35 states and the District of Columbia.
Business Inventories (February 2020, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.013 trillion (-0.4% vs. January 2020, -0.1% vs. February 2019).
Treasury International Capital Flows (February 2020, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$35.3 billion (vs. January 2020: +$28.9 billion, February 2019: +$35.4 billion).
Beige Book (April 2020): “Economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic. The hardest-hit industries…were leisure and hospitality, and retail aside from essential goods.”

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