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.

Jobless Claims Build, Confidence Falls: April 6 – 10

Americans continued filing for jobless claims as consumers and businesses grew gloomy. Here are the five things we learned from U.S. economic data released during the week ending April 10.

#1Another historic week for jobless claims. The Department of Labor reports there were a seasonally adjusted 6.606 million first-time claims made for unemployment insurance benefits during the week ending April 4. This represented a 261,000 decline from the prior week but also a 3,150 percent jump from the year-ago pace. (Filing difficulties in some states likely have suppressed the reported claims numbers.) There were 7.455 million people receiving continued unemployment insurance benefits during the week ending March 28, well above the 1.705 million people count from the same week a year earlier.

#2Consumer sentiment is in a freefall. The preliminary April reading of the University of Michigan’s Index of Consumer Sentiment nosedived by 18.1 points (the largest single-month decline in the 50-plus year history of the index) to a seasonally adjusted reading of 71.0. The measure has lost 30.0 points over the last two months. The current conditions index has lost 31.3 points so far in April to 72.4, while the expectations index shed 9.7 points to 70.0. The press release noted that the relatively “small” drop in expectations reflected a belief among consumers that “the infection and death rates from COVID-19 would soon peak and allow the economy to restart.” If and when that fails to materialize, “a renewed and deeper slump in confidence” will emerge. 

#3Small business owner sentiment deteriorated rapidly in March. The Small Business Optimism Index from the National Federation of Independent Business dropped by 8.1 points during the month to a seasonally adjusted reading of 96.4. This was the measure’s lowest reading since November 2016 and the biggest single-month drop in the study’s history. Nine of the ten index components fell in March, led by huge drops for expected real sales, expected economic conditions, whether it is a good time expand, and plans to increase employment. The press release stated, “[t]he small business sector is anticipating and bracing for continued economic disruptions going forward.” 

#4Prices fell in March. The Consumer Price Index (CPI) declined 0.4 percent on a seasonally adjusted basis during the month, its biggest single-month decline since January 2015, per the Bureau of Labor Statistics. Energy prices plummeted 5.8 percent, pulled down by a 10.5 percent drop in gasoline prices and declining electrical (-0.2 percent) and natural gas (-1.4 percent) utility prices. Food prices gained 0.2 percent. Net of energy and food, core CPI decreased for the first time in ten years with a 0.1 percent decline. While prices rose for used cars/trucks (+0.8 percent) and medical care services (+0.5 percent) but plummeted for apparel (-2.0 percent), transportation services (-1.9 percent), and new vehicles (-0.4 percent). CPI has grown 1.5 percent over the past year, while the core measure has a 12-month comparable of +2.1 percent.

Meanwhile, the final demand wholesale prices slumped for a second consecutive month, shedding a seasonally adjusted 0.2 percent. The core Producer Price Index (PPI), which nets out foods, energy, and trade services, also pulled back 0.2 percent in March. Energy prices plunged 6.7 percent (gasoline: -16.8 percent) while food prices held steady (although prices for eggs and frozen foods rose). Final demand services PPI edged up 0.2 percent as the measure for trade services (which measures retailer and wholesaler margins) surged, but the measure for transportation/warehousing plummeted. PPI has grown a modest 0.7 percent over the past year, while core PPI has gained 1.0 percent over the past year.

#5The number of job openings narrowed in February. The Bureau of Labor Statistics estimates there were a seasonally adjusted 6.882 million open jobs at the end of the month, off 120,000 from January and 2.4 percent from a year earlier. At the time, this is significantly greater than the number of unemployed adults (5.787 million). A few industries reported year-to-year increases in job openings; including, the government (+11.1 percent), financial activities (+9.3 percent), and education/health services (+3.1 percent). Openings were below their year-ago comparables at wholesale trade (-19.4 percent), manufacturing (-9.1 percent), retail (-8.1 percent), and leisure/hospitality (-7.4 percent). Hiring slipped by 29,000 jobs to 5.896 million, which was up 3.4 percent from a year earlier. Separations contracted in February, dropping by 143,000 for the month and 2.0 percent over the previous year. Obviously, this will not hold true in the coming months. 

Other U.S. economic data released over the past week:
Wholesale Trade (February 2020, Inventories of Merchant Wholesalers, seasonally adjusted): $655.8 billion (-0.7% vs. January 2020, -1.3% vs. February 2019).
Consumer Credit (February 2020, Outstanding Non-Real Estate-Backed Consumer Debt Balances, seasonally adjusted): $3.129 trillion (+$18.1 billion vs. January 2020, +4.9% vs. February 2019).
Monthly Treasury Statement (March 2020, Federal Budget Surplus/Deficit): First six months of FY2020: -$743.6 billion (vs. +7.6% vs. the first six months of FY2019).
FOMC Minutes

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