A look behind at the April 13 week piles on the evidence that the US economy entered a recession in March or April. The NBER will eventually officially set the dates, but I am confident that the data will bear this out. The speed and severity of the turn in the available economic reports leaves me in little doubt.
In particular, the anecdotal evidence of the Fed’s Beige Book showed activity on a spectrum of slowing-to-contracting, a sharp downturn from recent readings. With no District reporting growth and the outlook gloomy, this was no short-term blip as usually follows big-impact events like a natural disaster. The tone of the Beige Book corresponds well to turns in the economy, and the signal is unmistakable.
The labor market is suffering a shock with the astronomical rise in initial jobless claims. Unadjusted claims levels dipped 1.240 million to 4.972 million in the April 11 week, but the four week total was an unprecedented 20.1 million. The insured rate of unemployment in the April 4 week jumped to a series high of 8.6% after 5.6% in the prior week. Even if the pace of layoffs and applications for benefits eases off in coming weeks, the rolls of insured unemployment are going to continue to climb and bring the insured unemployment higher as well.
The monthly data on state and regional unemployment followed the national unemployment rate of 4.4% upward. In March much of the deterioration in states was visible in areas where the impacts of COVID-19 were already cutting into business activity with closures and social distancing measures. April could see these numbers worsen significantly across the country.
Data on retail and food sales in March plunged as expected due to falling sales of motor vehicles, a drop in volume and price of gasoline sales, and generally soft spending on nonessentials as consumers hunkered down at home and worried about loss of income.
It was anticipated that the housing market would take a hit as consumers faced job insecurity and social distancing kept what buyers there might be away from home shopping. However, the NAHB/Wells Fargo Housing Market Index for April fell to 30, less than half the 72 in March. Buyer traffic was minimal with sales and expected sales back to levels seen when the economy was struggling to emerge from recession and the housing market had yet to recover significant upward moment.
Starts of homes declined 22.3% to 1.216 million units (SAAR) in March. That wasn’t entirely due to impacts from the coronavirus. Some starts had been borrowed in the winter months when mild weather and consumer demand ensure a near-term peak in activity. The same was true for the number of permits issued which declined 6.8% to 1.353 million units in March. However, the full force of job losses and shuttering of nonessential businesses will be seen in April’s numbers.
The monthly regional surveys of manufacturing continued their precipitous downward slide in April. The general business conditions index in the New York Fed’s Empire State Manufacturing survey plunged 56.7 points to -78.2, while the Philadelphia Fed’s Manufacturing Business Outlook index lost 43.9 points to -56.6. The take-away is that conditions for the factory sector are mostly at a standstill. The numbers in the New York Fed’s Business Leaders Survey for the service sector suggest things are even worse there. The business activity index dropped 63.4 points to -76.5.
The data on industrial production in March fell 5.4% and reflected the declines in manufacturing – particularly motor vehicles – and the cutbacks in the energy sector while prices for oil and natural gas are at four-year lows. Closure of businesses had led to sharp declines in utilities output as well.
Falling fuel costs was behind much of the 2.3% decrease in the March Import Price Index. Fuel prices were down 26.8% month-over-month. Excluding fuels, import prices edged down 0.1%, in part after a gain in the value of the dollar against many currencies.
Soft energy prices are also keeping inflation expectations in check. The Atlanta Fed’s Business Inflation Expectations was for up 1.4% in April after 1.9% in March. Some of it is also due to the widespread concerns about a recession in the wake of COVID-19.
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