NAM: Monday Economic Report
In the latest NAM Manufacturers’ Outlook Survey, 33.9% of manufacturing respondents reported a positive outlook for their company, the lowest reading since the first quarter of 2009 and down from 75.6% in the previous survey. Large manufacturers were less positive than their small and medium-sized counterparts.
Weak domestic demand was the top primary business challenge in the second quarter, supplanting the inability to attract and retain talent, which had been the top concern for 10 consecutive quarters. Yet half of respondents expect workforce challenges to be a concern once the COVID-19 crisis abates.
The vast majority of manufacturers have continued operations (67.1%) or temporarily halted only part of their operations (31.6%). Among large manufacturers, 50.8% are completely operational, while roughly 73% of small and medium-sized firms state the same.
Economic indicators released last week continued to show two things. First, the COVID-19 outbreak and the sharp drop in activity have resulted in historic declines for many economic measures, particularly in March and April. Second, the May data points suggest that the worst of those decreases might be behind us, with some encouraging bounce backs from record lows, albeit with ongoing negative challenges remaining.
New orders for durable goods plummeted 17.2% in April, the largest monthly decline since August 2014. Transportation equipment sales were down a whopping 47.3% for the month. Core capital goods spending was off 5.8% in April.
Over the past 10 weeks, nearly 40.8 million Americans have filed for unemployment insurance, but continuing claims declined for the first time since February. Still, 14.5% of the workforce received unemployment insurance for the week of May 16.
With Americans staying closer to home and many businesses closed, the savings rate soared to 33%, an all-time high. Indeed, personal spending plummeted by a record 13.6% in April. Durable and nondurable goods consumption declined by 17.3% and 16.2%, respectively.
At the same time, personal income soared 10.5% in April, spurred by a $3 trillion increase in government transfer payments for the month, enough to offset sharp declines in employee compensation and proprietors’ income, including for manufacturers.
The Conference Board and the University of Michigan and Thomson Reuters both reported slight increases in consumer confidence in May after plummeting to multiyear lows in April. Americans remain anxious in their outlook, however, particularly regarding jobs and income.
In advance statistics, the goods trade deficit rose from $64.98 billion in March to $69.68 billion in April. Goods exports and imports were both off very sharply in April, down $32.17 billion and $27.47 billion, respectively, with the COVID-19 pandemic sending the global economy into a deep recession.
The U.S. economy shrank by an annualized 5% in the first quarter, slightly down from the previous estimate of 4.8% and the largest quarterly decline since the fourth quarter of 2008, with sharp pullbacks in consumer and business activity.
Real GDP is expected to contract by at least a mind-numbingly large 32.5% at the annual rate. Once the COVID-19 outbreak starts to abate, economic activity should improve, with real GDP rebounding strongly in the third quarter, currently estimated to be a gain of around 16%. Yet, the economic damage will have been done, with the U.S. economy declining 4.5% in 2020.