NAM: Monday Economic Report
Manufacturing production fell sharply by 6.3% in March as firms grappled with the COVID-19 outbreak, including closures, reduced activity and significant supply and demand disruptions globally. Durable and nondurable goods production decreased 9.1% and 3.2% in March, respectively, with all 19 major sectors experiencing declines (see the graphic below).
On a year-over-year basis, manufacturing production has declined 6.6%. Manufacturing capacity utilization plummeted from 75.0% in February to 70.3% in March, the lowest rate since May 2010. Meanwhile, total industrial production decreased 5.4% in March, the largest monthly decline since January 1946.
The current outlook is for production in the sector to decline 12% between February and May before starting to rebound in June and beyond. However, the economic damage will take some time for manufacturing to fully recover from, with production down 6.5% in 2020.
The New York and Philadelphia Federal Reserve Banks reported sharply reduced activity in their districts in April, with more than 70% of respondents in both reports noting decreased orders for the month. With that said, respondents in both reports felt cautiously optimistic for a rebound over the next six months.
With Americans under stay-at-home orders nationwide, retail sales plummeted 8.7% in March, the largest monthly decline since the series began in 1992. The extent of the decline in retail spending in March was mind-blowing, particularly in some sectors (see more details below), but there were also some bright spots. Over the past 12 months, retail spending has declined 6.2%, but with motor vehicles and gasoline station sales excluded, retail sales eked out a 0.2% year-over-year gain.
New housing starts fell 22.3% in March, down from an annualized 1,564,000 units in February to 1,216,000 units, an eight-month low. Over the past 12 months, new housing starts have risen 1.4%, with single-family starts up 2.8% but multifamily activity down 1.6% since March 2019. Housing permits eased to the slowest rate since July, declining from 1,452,000 units at the annual rate in February to 1,353,000 units in March.
Nonetheless, builder confidence plummeted to the lowest level since June 2014 on worries that residential construction and sales will be severely impacted by the worsening in economic conditions due to the COVID-19 pandemic. New housing starts and permits will also likely move lower in April, perhaps closer to 1 million units at the annual rate, before hopefully rebounding in subsequent months.
There were 5,245,000 initial unemployment claims for the week ending April 11, building on the 6,615,000 claims added for the week ending April 4. These are unprecedented levels, suggesting that 22 million Americans filed for unemployment insurance in the past four weeks as the economic toll of the COVID-19 crisis takes hold. At the same time, continuing claims increased from 7,446,000 for the week ending March 28 to 11,976,000 for the week ending April 4 in this report, a new all-time high. The latest figure suggests that 8.2% of the workforce received unemployment insurance that week, a rate that will increase substantially given the initial claims data.
The current expectation is for the unemployment rate to peak around 15% in May, up from the 50-year low in February, which was 3.5%. With that said, if all the 22 million who filed for unemployment insurance over the past few weeks were to receive it (and not all qualify), the current data would be consistent with roughly 18%. That makes the continuing claims number more important moving forward in estimating the employment outlook.