Unemployment Claims Skyrocket as Expected
Economic Report Monitor #2
March 26th, 2020
From ABC News
In another bid to curtail uncertainty, Wells Fargo released an update to their US economic outlook as they digest the acceleration of new cases in March. The bank sees growth coming to an abrupt halt for the next two quarters, -15% in 2020 Q2 and -5% in 2020 Q3, while unemployment nearly triples to 9% by the end of the crisis. The slowdown will also create deflationary pressures with the PCE price index below 1% despite the Fed Funds Rate near 0%. Fiscal stimulus is on the move to fill the gap. Forecasts for China and the Eurozone are equally grim with Wells Fargo predicting the Asian giant will see its first contraction in GDP ever. While the numbers are extremely bearish, it does help people start to wrap their heads around the effects of the pandemic.
The Census Bureau's advance indicators for February were merely a whisper of the effects of COVID-19 on business. International trade did fall -9.1% as imports saw a -2.6% contraction. It's likely that China's response to its early crisis caused a slowdown in exports which spilled over into this data. Industrial supplies were down -4.1%, and capital goods were down -7.0%. Both categories typically see some effects from China. Automotive vehicles, which aren't a significant Chinese import, were up 4.8%.
A third round of GDP estimates for 2019 Q4 revealed no new edits with the exception of a slight uptick in the PCE price index. Corporate profits did show how low rates are putting heavy pressure on financial corporations. Overall, corporate profits increased by $53 billion, but financial corporations claimed $0.7 billion of those profits while non-financial corporations accounted for $53.7 billion.
In the late morning, the first of the troubling Fed PMIs was reported. The Kansas City Fed Manufacturing Survey saw a brutal drop to -12 in March. Almost every category was down sharply with the worse being new orders at -38 and number of employees at -32. Only 9% of respondents said they saw capital expenditures increasing, and only 8% of respondents said foreign export orders would increase. Inventories didn't have the lowest numbers, but they're like to get worse. The individual selected comments speak to the uncertainty businesses are trying to tolerate in this crisis and certainly provide more context than the data.
- “Customers are cancelling orders already booked. Also cancelling work not finished and asking that you hold it for them.”
- “We are concerned of being shut down by State Gov... Business volume is high right now and we cannot afford to shut down. Currently quoting projects pertaining to assistance in medical (coronavirus in particular).”
- “Our biggest challenge is protecting our manufacturing labor, these are jobs that cannot be performed at home. Besides the risk of absences due to infection or caring for others, the closure of restaurants, hotels, etc. resulting in employee layoffs affects our production labor staff and creates further challenges, for instance since their roommates can't pay rent.”
- “Losing production employees who live paycheck to paycheck. We are trying to keep them on but if this thing lasts more than a month we will have to lay many people off.”
- “COVID-19 has the potential to be more disruptive than any other economic event in the 20 years that I've run the organization.”
- “This is the most uncertain about the future that I have ever been during my 29 years with this company.”
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