Manufacturing Outlook Improves in Kansas City as Stimulus Looks Effective
Economic Report Monitor #20
April 23rd, 2020
It's Thursday, so that means another jobless claims report came out detailing the crash in employment that the lockdowns have caused so far. Initial claims last week grew 4.43 million as the backed-up unemployment system continues tackle applications. Insured unemployment rate is at 11.0% and will add more next week with the new initial claims. It does look like there is a bottom in new claims which probably would have been deeper if the system didn't back up like it did. In total since March 14th, 26.5 million initial claims have been reported which suggests 16.2% of the labor force is seeing an impact from the lockdown. Major equity indexes still closed in the green.
Two more PMIs came out today as April reports start to make their appearances. The IHS Markit Flash US Composite PMI was quite striking. New series lows came in for the Flash US Composite Output Index at 27.4 and the Flash US Services Business Activity Index at 27.0. Both indexes declined at the fastest past ever meaning the services contraction during the COVID-19 outbreak was worse than the 2008-2009 contraction by this measure. The Flash US Manufacturing PMI fell to 36.9, not quite a series low, but the accompanying US Manufacturing Output Index did see a drop to a series low of 29.4. In previous March PMIs, there was some stabilization in expectations as businesses were more secure about a short-term lockdown. In the April flash indexes, firms' outlooks did not survive as those categories also slumped. In particular, expectations in the Services index fell to a series low, and expectations in the Manufacturing index became pessimistic for the first time since July 2012.
The Kansas City Fed Manufacturing Survey for April also came out later in the day. The index saw a sharp drop to -30, the lowest reading in the composite index's history. Production, shipments, and new orders were decimated posting the lowest readings in the survey at -62, -57, and -64. Total number of employees declined to -34, just ahead of average employee workweek indicating that some firms probably tried to keep as many people employed as possible with the limited work that was available. Prices and inventories were relatively stable both dropping to mid-double digits, not in crisis zones. Interestingly April expectation numbers improved across the board as the composite index jumped from -19 in March to -6 in April. Most categories were in the mid- to high-single digits suggesting only a slight pessimism about the future. Capital expenditures, though, was the worst at -30. The consistent negativity in Capex categories across PMIs suggests business investment in 2020 will see a very sharp decline.
The relative optimism in outlook may be down to the swift action of policymakers in providing support to businesses both big and small. In special questions given with the Kansas City survey, less than 15% of firms reported taking no actions in response to COVID-19 with over 70% taking advantage of SBA programs like the Economic Injury Disaster Loan (EIDL) Program and Paycheck Protection Program (PPP). As a result, those firms have been able to limit the need for layoffs. In another special question, only about 20% of firms said they laid off employees in response to COVID-19 while about 15% used furloughs, just over 20% reduced hours to part-time, and just over 10% used reduced wages. Considering the uncertainty ahead, the results above present a preferable outcome to one which includes bankruptcy and mass, complete unemployment.
April 23rd, 2020
It's Thursday, so that means another jobless claims report came out detailing the crash in employment that the lockdowns have caused so far. Initial claims last week grew 4.43 million as the backed-up unemployment system continues tackle applications. Insured unemployment rate is at 11.0% and will add more next week with the new initial claims. It does look like there is a bottom in new claims which probably would have been deeper if the system didn't back up like it did. In total since March 14th, 26.5 million initial claims have been reported which suggests 16.2% of the labor force is seeing an impact from the lockdown. Major equity indexes still closed in the green.
Two more PMIs came out today as April reports start to make their appearances. The IHS Markit Flash US Composite PMI was quite striking. New series lows came in for the Flash US Composite Output Index at 27.4 and the Flash US Services Business Activity Index at 27.0. Both indexes declined at the fastest past ever meaning the services contraction during the COVID-19 outbreak was worse than the 2008-2009 contraction by this measure. The Flash US Manufacturing PMI fell to 36.9, not quite a series low, but the accompanying US Manufacturing Output Index did see a drop to a series low of 29.4. In previous March PMIs, there was some stabilization in expectations as businesses were more secure about a short-term lockdown. In the April flash indexes, firms' outlooks did not survive as those categories also slumped. In particular, expectations in the Services index fell to a series low, and expectations in the Manufacturing index became pessimistic for the first time since July 2012.
The Kansas City Fed Manufacturing Survey for April also came out later in the day. The index saw a sharp drop to -30, the lowest reading in the composite index's history. Production, shipments, and new orders were decimated posting the lowest readings in the survey at -62, -57, and -64. Total number of employees declined to -34, just ahead of average employee workweek indicating that some firms probably tried to keep as many people employed as possible with the limited work that was available. Prices and inventories were relatively stable both dropping to mid-double digits, not in crisis zones. Interestingly April expectation numbers improved across the board as the composite index jumped from -19 in March to -6 in April. Most categories were in the mid- to high-single digits suggesting only a slight pessimism about the future. Capital expenditures, though, was the worst at -30. The consistent negativity in Capex categories across PMIs suggests business investment in 2020 will see a very sharp decline.
After Tuesday's steep decline in existing home sales, the Census Bureau reports on new home sales for the month of March in another real estate market update. The data revealed a -15.4% drop in homes sold in March with large regional declines in the Northeast, down -41.5%, and the West -38.5%, two regions that saw the highest intensity of infection. The drop in sales saw new home supply build to 6.4 months worth after it had tightened to 5.0 months in January. Unlike the existing home sales report, there was a slight drop in median sales price to $321,400 from $330,100. This was likely caused by higher price segments seeing a larger drop in sales compared to lower price segments. In a year-over-year comparison, most data points are flat, so the real estate market probably hasn't seen the decline in activity that it will probably see yet. Expect more pessimism in April.
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