A look behind at the March 9 week shoulders aside the economic data in favor of rapid developments related to financial markets. Central banks made efforts to provide reassurance to markets with rate cuts (Bank of England, Bank of Norway) or liquidity measures (Bank of Japan, Federal Reserve, ECB). Fiscal authorities put together large funding packages to try to address economic disruptions and provide medical services and disease tracking. Inaccurate and/or contradictory rhetoric out of the White House was largely ineffective in helping stem the tide. Most efforts to calm and reassure fell short. Stocks entered bear market territory. What seemed to finally tip the balance was the declaration of a national emergency on Friday afternoon. It remains to be seen if that holds into the early days of the coming week.
Once more the economic data could be divided into reports taken when things were not-so-bad (February) and bad (March).
The NFIB Small Business Optimism Index for February was essentially unchanged at 104.5 after 104.3 in January. The negligible uptick was mainly due to greater anticipation that the economy will improve. That is likely to get its feet kicked out from under it next time around.
On the other hand, the preliminary University of Michigan Consumer Sentiment Index for March fell 5.1 points to 95.9 after 101.0 in February when confidence was at its second highest reading after the recession. Consumers are still quite confident in the historical context but this is a significant wobble in their optimism. I would not be surprised by a downward revision in the final reading when that is reported at 10:00 ET on Friday, March 27.
The Atlanta Fed’s Business Inflation Expectations for March were up again to 1.9% after the survey mean of 1.7% in February. Given the declines in energy costs, businesses are probably looking at prices to go up again for goods in short supply like those for construction or healthcare. Business so far have seen some impact from the spread of COVID-19, but a still solid majority report no effect. That is likely to change by next month as well.
In contrast, the University of Michigan Survey of Consumers inflation expectations remain at or near record lows. The preliminary March data put 1-year expectations at 2.3% — the series low – and 5-year expectations at 2.3% — just above the series low of 2.2% in December 2019. Consumers tend to focus on household spending and recent steep declines in gasoline prices drag down inflation expectations for them.
Inflation reports for February were all soft month-over-month due to energy costs. Year-over-year readings were more on trend. What is evident is that it is service prices that are the main driver of upward price pressure while commodities costs are tame, at best.
Initial jobless claims for the week ended March 7 were on trend and the insured unemployment rate remained at 1.2% in the February 29 week. Up until then the labor market was not feeling the strains of the disease responses. However, the coming week is likely to break with the long string of low levels of new filings for benefits. Coming weeks – when claimants remain on unemployment rolls – could see the first significant and sustained change of direction – higher – for the weekly data.
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