FOR IMMEDIATE RELEASE
April 13, 2020
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
When you take a long view of what’s been done to help the economy over the past few weeks, in total it’s been quite favorable.
- The CARES Act is a $2.3 trillion disaster relief act that, if the banks and government agencies involved can move fast enough, will go a long way to keeping cash flowing to those who were laid off because of the closures resulting from COVID-19. Plus, another round of “stimulus” (disaster relief) is already being talked about. Fannie Mae and Freddie Mac have agreed to delay mortgage payments for those severely affected by financial difficulties from the fall out. Many states are not allowing evictions for residential or commercial tenants at this time. All of these help cash flow and keep people in their homes.
- The Fed has pulled out all the stops in terms of providing the economy the liquidity to stay afloat. The central bank has shown that it is not out of tools. In fact, some of its moves are historic and the bank is in uncharted territory. But, what they are doing should work. The Fed said that “aggressive action must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate”. This is a not-so-subtle hint that fiscal lawmakers need to act quickly.
- Attempts to “flatten the curve” and prevent the health care system from becoming totally overwhelmed appear to be working. The daily number of new COVID-19 cases seems to be topping out. Social distancing appears to be working. U.S. officials have reduce their estimate of expected deaths from COVID-19 from 200,000-240,000 to 60,000.
- It’s an election year and Election Day is approaching. Neither party wants to alienate voters.
This doesn’t mean we are out of the woods. It also doesn’t mean that the recovery, when it starts, will be easy. It won’t be. It will not be a V. It will most likely be a Nike Swoosh with bumps along the way. How big the bumps will be is the big question.
There will be changes in consumer behavior due to what we are now going through. People won’t be rushing to crowded places. There will be huge supply chain issues. A noticeable percentage of those businesses that have closed will probably not reopen causing even more bottlenecks. These supply chain and bottleneck issues could cause at least temporary inflationary pressures to occur after the disinflationary pressures we are facing now.
There are significant risks if the economy opens too early. There are also significant risks if the economy opens too late. There is a risk that unless we get a medical miracle before the fall that the Coronavirus will make a second run at us. There are perverse incentives keeping some workers from going back to work immediately.
As long as consumers find themselves with cash (this is the majority of workers who did not lose their jobs during this period) or did not fall into deep financial problems (these are the people who should be helped by the CARES Act assuming that the money gets there fast enough) the basic underlying demand for a solid rebound should be there. Some will invariably fall through the cracks. Hopefully, that will be a small number. Overall, the recovery will be bumpy and we will not get back to pre-coronavirus levels of activity very quickly. But, the underlying factors for a significant recovery are clearly there once the economy opens.
Most of this week’s economic news falls into the “ignore it” category because it’s from the pre-COVID-19 period. I’d generally ignore the rest as well, but, it might give you some idea of what’s going on now. Yet, it too, in the overall context of things doesn’t mean all that much. For example, initial claims for unemployment insurance skyrocketed again both nationally and locally. No real surprise there. Consumer confidence fell through the floor in April. Also, no surprise. And consumer prices fell as did producer prices. I’ll discuss these below.
There is some data that is so off the charts that it is worth reporting. First, gross U.S. movie theatre ticket sales went from $128,711,600 for the week of March 7, 2020 to $5,058 the week of April 4, 2020. That’s a drop of 99.996%. Movie releases went from 110 to 2 for the same two periods. But wait, there’s more! Second, National TSA checkpoint travel numbers data show that the number of passengers a day was 2,590,499 for April 10, 2019. In April 10, 2020, the number was 108,977. That’s about a 96% decline. By the way, the last time that the nation averaged that number of passengers was around 1954. Sky Harbor is doing much better than most. It is operating with 15% of its normal passenger load.
• Initial unemployment insurance claims for the week of April 4 climbed another 6.6 million workers. This brings the total for the last three weeks to an unbelievable 16.8 million workers who had been laid off, mostly due to the Coronavirus. This represents about 11% of the employed population in March and about 10% of the labor force. The numbers are likely to continue to climb in the coming weeks. Moody’s Analytics has previously estimated that more than 70 million workers may be at medium to high risk of losing their jobs.
• The University of Michigan consumer sentiment index plummeted to 71.0 from 89.1 in March and 97.2 a year ago. This is the largest monthly decline ever recorded. It should not come as a surprise given what has happened to the U.S. labor market. Current conditions plunged 31.3 index points. Expectations fell by 9.7, a substantial decline but not nearly as steep as the record loss of 16.5 in December of 1980.
• Consumer prices decline 0.4% in March due to not only to the effects of COVID-19 but to oil price declines as well. The CPI for energy dropped 5.8% while food prices were up 0.3%. Excluding food and energy, the CPI fell by 0.1%. We are in a disinflationary period and will remain so until the economy reopens. This makes things more difficult for the FED as the want to keep inflation expectations anchored near their desired level of 2.0%. Once the economy does reopen it could soon hit supply chain constraints that force prices up. Year over year total consumer prices were up 1.5% and the CPI less food and energy was up 2.1%.
• Producer prices were also down. They declined by 0.2% for the month and are up a modest 0.7% from a year ago.
• Weekly initial unemployment claims in Arizona increased by 132,428. This is up 2,533% from a year ago. To give some perspective, in the first week of March, initial claims were 3,357. Just as with the national numbers, initial claims in Arizona are likely to climb over the next several weeks.
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