FOR IMMEDIATE RELEASE
March 9, 2020
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
Given all the headlines the Coronavirus is receiving, even good economic news is being treated like yesterday’s news. For example, the jobs report released on Friday was just plain excellent. Jobs growth was much stronger than expected. But, since it was from a time when Corona was just a tasty beer from Mexico, just like Rodney Dangerfield, it gets no respect. But it should. Because while the economic effects of the virus will cause the next 1-3 quarters of GDP growth to be weak to negative, it is important to understand that the slowdown is caused by fear and not from weak underlying economic dynamics. Those dynamics remain strong. Jobs are plentiful, incomes are rising, and confidence has been high.
The Coronavirus will cause people to travel less, especially by air or ship. People will tend to avoid crowds at concerts, sporting events, stores and restaurants to name a few places. Even some durables purchases will be postponed, mainly from supply chain issues due to plant closings in China and other places. But, with any luck at all, this will prove to be temporary. In fact, when the hysteria ends and supply chains are refilled, people will find themselves with an extra wad of cash that they saved due to the Coronavirus lifestyle (unless they splurged on toilet paper reserves). When that occurs, and it will, the economy will experience make-up spending. Some sectors, such as entertainment and restaurant spending, will not be made up, but that money is likely to be spent on other things as a substitute.
So, if GDP between now and late summer is weak, it is important to remember that the underlying dynamics of the economy isn’t to blame. The latest economic data proves that. It is being caused by what is likely to be temporary.
- Nonfarm employment grew by 273,000 in February. This was 100,000 more than anticipated. In addition, December and January data was revised upward. Even the manufacturing sector was up. So, while the Coronavirus coverage way overshadowed economic data, the data shows just how strong the underlying economy is. This doesn’t mean the current scare won’t slow things down. It means any slowdown is likely to be short term in nature.
- The unemployment rate in February fell to 3.5%. This matches a 50-year low.
- Wages continued to be under control as they hit an annual growth rate of 3.0%.
- In an emergency meeting, the Fed cut the overnight rate from 1.50%-1.75% to 1.00%-1.25%. The Fed can’t fix the supply chain. But, it can help the dollar. The rate cut will help exports and help boost confidence.
- The 10-year Treasury bond fell to 0.93%, the lowest rate on record. This hurts savers again.
- The ISM’s manufacturing index, at 50.1, was above 50 for the second month in a row. Any reading above 50 indicates expansion in the manufacturing sector.
- The ISM’s non-manufacturing sector rose to 57.3 in February. This is its highest level in a year and marks the 121st consecutive month of expansion.
- Construction spending grew 6.8% from a year ago. Both private construction (4.9%) and public construction (12.6%) were up for the same time period.
- The Greater Phoenix real estate market continues to be very tight. According to the Cromford Report, active listings declined by 31.1% from a year ago. The number of resales increased by 14.2% leading to an increase in the median sales price of 11.7% to $295,000.
Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.
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