Uncertainty Remains High for Businesses as COVID-19 Cases Resurge

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Economic Report Monitor #47
June 24th, 2020

On a mostly quiet day of economic indicator reporting, the stock market fell in response to an increase in COVID-19 effects in certain states. A resurgence in cases has injected new uncertainty into the economic outlook as the reopening process looks to be ineffective in staving off further infections. The hardest-hit states, Florida and Texas, have yet to see major strains on their respective healthcare systems, but if the situation isn't addressed, that the strain could return. 


Businesses reflected this increase in uncertainty in the June update of the Atlanta Fed's Survey of Business Uncertainty. The headline Business Uncertainty Index rose to 311.8 in June from 285.7 in May as respondents reported not knowing how sales, employment, and capital expenditures will look in the next 12 months. Uncertainty over sales growth continues to be a major concern for firms as it rises 397.3 to 440.0. If businesses can't be sure that revenues will recover, they are likely to operate with as little costs as possible which means employment can't recover as strongly. The respondents in the survey only saw a slight increase in capital investment and employment expectations as a direct result of sales uncertainty.

MBA Mortgage Applications, in a consolidating move, dropped last week after two weeks of strong increases. The composite index fell -8.7% with purchasing down -3.0% and refinancing down -12.0%. The change is not a move on higher mortgage rates which remain near all-time lows, but it could be caused by individuals thinking they will have plenty of time to take advantage of these low rates.

Some more interesting data came out of the weekly oil supply report from the EIA. Stockpiles grew at more or less the same rate, a 3.4 million barrel increase with 1.4 million going to commercial storage and 2.0 million going to the SPR. The surprise came from an increase in domestic production to 11 million b/d after reversing the drop to 10.5 million b/d seen the week before. Oil prices have staged a comeback, approaching $40, but much of that production is unprofitable even at that level. The increase in production likely pushed exports higher as well with it increasing 695k b/d last week. It could also be a response to a nice rebound in product supplied seen last week. While still -11.8% below last year, the 1.058 million b/d increase pushes current consumption to 18.348 million b/d and signalling a recovery. That marker for consumption will have to keep rising if the future supply increases are to be considered sustainable.

Finally, the FHFA House Price Index released its April report, lagging most reports that have been released and following similar trends. Home prices increased by 0.2% confirming a 5.5% year-over-year increase. The annual change is just below the annual growth rate since January 2012 suggesting that COVID-19 effects on home prices are negligible. As seen in the housing supply information from the Census Bureau, stables price growth has been maintained while construction continues to lag. The strength in demand will lead to a tighter real estate market that will need to be eased eventually.

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