A look behind at the March 16 week is somewhat dizzying with rapid developments out of major central banks in response to the stresses in financial markets due to the spread of the novel coronavirus. Fiscal authorities are also busy trying to craft packages of support that will help economies weather the crisis. Forecasts for growth in the second quarter and beyond have plunged. Some analysts are already calling a recession now and some are even going so far as to forecast outright depression. It is a gloomy prospect that will take the economic data some time to catch up with. The numbers in the past week by-and-large do not provide fresh insight.
See the March 20 “” for a summary of the major announcements since the start of March. For fuller history and context, look at the Whetstone Analysis Reference Library for information about rate actions and unconventional monetary policy decisions.
The originally scheduled FOMC meeting for March 17-18 was preempted by an emergency meeting of Fed policymakers on Sunday, March 15. At the session, the fed funds rate target range was brought down to the effective lower bound at 0%-0.25% and other short-term rates followed suit. Large scale asset purchases were reintroduced, although more as a measure to improve liquidity than to provide economic stimulus. Forward guidance was brought back as well. Since then the FOMC has taken further aggressive measures to open up the taps on liquidity with some new and some revived facilities. As a footnote, fast-moving situation and high levels of uncertainty meant that the FOMC would not update its Summary of Economic Projections until the June 18-19 meeting.
The Whetstone Analysis Reference Library has fuller information about the history of asset purchases and credit facilities.
The one number that brought home the impact rippling from the spread of COVID-19 and the efforts to contain it was initial jobless claims for the week ended March 14. The level jumped 70,000 to 218,000 in the week, the largest week-over-week increase since up 81,000 in the November 10, 2012 week when Hurricane Sandy caused widespread havoc and abrupt dislocations in the regional economies along the East Coast. That was a short-term peak in claims and relatively local its presence, and isn’t likely to be the case this time around.
Regional surveys of activity for manufacturing in March from the New York and Philadelphia Feds signaled that the factory sector lost any upward momentum in January and February and was likely to more than return to the mild downturn of August-December 2019. The New York Fed’s Business Leader Survey for the service sector showed that activity has plummeted for nonmanufacturing as well.
Data on the housing market included the NAHB/Wells Fargo Housing Market Index for March. It remained at a solid reading of 74 after 76 in February. However, it may not properly capture the outlook for the housing market. Restrictions on public movement were not largely in place at the time of the survey, nor were disruptions in credit markets that central banks are trying to address. The numbers for housing starts and permits issued in February were consistent with conditions earlier. Mild weather allowed building to continue and there was no hit of let up in demand for new residential construction while mortgage interest rates were especially attractive to consumers. However, unless the mortgage was already approved, it may be harder to get one during the period of uncertainty ushered in in early March. Starts could hit the proverbial brick wall in the next month’s data. The same is true for sales of existing homes which climbed 6.5% in February to 5.77 million units (SAAR) with consumers closing contracts faster than at any time since the housing bust.
Other employment data reached back into January. The January JOLTS numbers showed solid levels of job openings, hirings at a brisk pace, layoffs low, and voluntary job quits high. The labor market was tight. February should not show much deterioration when that is reported next month, but March could be the worst performance since the recession.
Retail and food sales in February were weaker than expected, although it was mainly in the three most volatile components of motor vehicle sales, building materials, and gasoline. Motor vehicle sales are typically soft in February and increased uncertainty meant less confidence in a big ticket purchase on the part of consumers. Building materials were coming off a few strong months, so the pause was not wholly unexpected. Gasoline prices declined sharply, therefore bringing down the dollar value of sales. What is more important is what happens in the March data where shopping shifted to staples and emergency supplies rather than discretionary spending.
The Conference Board’s Leading Economic Index for February was essentially irrelevant in light of the rapid and deep change in economic and market conditions.
The one piece of data directly related to GDP growth for the first quarter was the January report on business inventories which suggested the change in private inventories will drag on activity, although it should make a positive contribution when the third estimate of fourth quarter GDP is reported at 8:30 ET on Thursday, February 26.
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