NAM: Monday Economic Report
Many economic indicators hit historic and troubling records as the economic damage globally from the COVID-19 pandemic grows. Here are some of the record-breaking numbers from last week:
Weekly initial unemployment claims soared to 3,283,000 for the week ending March 21, the highest level on record by far. This foreshadows a rapid increase in the unemployment rate, likely jumping from 3.5% in February to 5.5% to 6.0% in March, with sharply higher rates in April.
With many consumer-facing businesses closed and more Americans staying closer to home, the IHS Markit Flash U.S. Services Business Activity Index declined from 49.4 to 39.1, a record low. Service-sector activity also plummeted to new all-time lows in the Eurozone and in the United Kingdom in preliminary data.
The U.S. manufacturing sector has also been negatively impacted, with March sentiment surveys contracting at rates not seen since the Great Recession.
The IHS Markit Flash U.S. Manufacturing PMI declined from 50.7 in February to 49.2 in March, the fastest rate since August 2009, as the sector struggles with the COVID-19 outbreak and significant demand and production disruptions.
Manufacturing activity fell at the fastest pace in 11 years in the latest survey from the Kansas City Federal Reserve Bank, with data contracting across the board. Beyond the COVID-19 challenges, respondents also cited the sharp drop in oil prices, which hit the energy sector in the district hard.
While activity remained relatively stagnant in March in the Richmond Federal Reserve Bank’s region, manufacturers in the district felt negative in their outlook for the next six months for new orders and shipments.
Improved motor vehicles and parts demand helped to boost new durable goods orders in February, but excluding transportation equipment, sales fell 0.6% for the month. Core capital goods orders decreased 0.8% in February. Prior to the current crisis, new orders for durable goods have declined 0.1% since February 2019, but excluding transportation equipment, sales have fallen 0.9% year-over-year.
The Index of Consumer Sentiment from the University of Michigan and Thomson Reuters declined from 101.0 in February to 89.1 in March, the lowest level since April 2016, and is likely to continue to trend lower when the next preliminary data are released on April 9.
There were more indicators showing that, after a challenging 2019, the U.S. economy had strengthened before the COVID-19 pandemic brought growth to a sudden stop.
Real GDP grew 2.1% at the annual rate in the fourth quarter, with the U.S. economy growing modestly. In 2019, real GDP rose 2.3%, easing from 2.9% growth in 2018. Obviously, the current crisis has brought that growth to a halt, with the U.S. economy predicted to decline 1.5% in the first quarter and historically sharp decreases forecasted for the second quarter. Still, growth could rebound in the second half of this year once the effects of the coronavirus pandemic start to wane.
Personal income grew strongly in February, rising 0.6% for the second straight month, with 4.0% growth over the past 12 months. Service-sector spending boosted personal consumption expenditures in February, even as goods purchases declined, with 0.2% growth for the month and a healthy 4.9% increase year-over-year.
New single-family home sales eased 4.4% in February but remained robust, soaring 14.3% year-over-year. Homebuyers reacted favorably to reduced mortgage rates, a strong labor market and warmer-than-normal winter temperatures.
The personal consumption expenditures deflator inched up 0.1% in February for the second straight month. Since February 2019, the PCE deflator has risen 1.8%, including at the core level, which excludes food and energy costs. The core PCE deflator has remained below the Federal Reserve’s stated goal of 2.0% core inflation for 16 straight months.
Especially in light of the current COVID-19 crisis, the Federal Reserve is more concerned with a contracting U.S. and global economy and likely deflationary pressures from a downturn. Indeed, the Federal Reserve has undertaken extraordinary measures in recent weeks to help prop up the economy and to address credit and liquidity concerns in financial markets. With the Federal Reserve aggressively purchasing assets, total assets on its balance sheet soared to $5.25 trillion this week, an all-time high and one that will continue to grow over the next few weeks.