HIGHLIGHTS OF THE WEEK
- Equity markets are poised for their second week of gains, buoyed by the White House’s guidelines for re-opening the economy. The price of oil touched an 18-year low, driven by the historic drop in demand.
- March economic indicators showed a dramatic drop in activity, even though shutdowns only got underway mid-month. Jobless claims also continued to mount in the second week of April.
- Some European countries are starting to relax restrictions in select sectors, while the UK and France have extended their closures. The White House’s guidelines ultimately leave decision authority with individual governors.
Closures Hit March Economic Data Hard
As the COVID-19 pandemic continues, equity markets are poised for their second week of gains, buoyed by the White House’s guidelines for re-opening the economy. Even so, the price of oil touched an 18-year low, driven by the historic drop in demand. Oil is not the only thing Americans are consuming less of, with the March economic indicators released this week setting new milestones for declines.
The dramatic nature of the shutdowns necessary to contain the pandemic came into sharp focus in March indicators (Chart 1). Core inflation had its first monthly decline in ten years. Retail sales fell a record 8.7% on the month. Housing starts plummeted by the largest amount since 1984, and industrial production had its biggest drop since 1946. On top of this hard data, the NY and Philly Fed’s manufacturing sentiment indices plunged in April.
Weekly jobless claims also continued to mount. In the week ended April 11th, 5.25 million Americans filed for unemployment benefits. This is the second week of decline, suggesting the peak of the claims wave may be behind us (Chart 2). Even so, these job losses look set to take the unemployment rate to between 15-20% in April, a post-war high. We expect that the incredibly popular Paycheck Protection Program, rolled out though part of the CARES Act will start to reduce the number of layoffs, now that small businesses can access this short-term funding (see report). Unfortunately, the program has already run out of funds, and Congress has not yet negotiated a deal to increase funding.
The dramatic impact of necessary shutdowns in China lead real GDP to decline 6.8% in the first quarter versus a year ago.This is China’s worst single quarter since it started publishing comparable data in 1992, and the first contraction since 1976 (end of the Cultural Revolution). On the upside, activity in March was better than the first two months of the year as activity gradually re-opened.
Some European countries are relaxing shutdown measures, while others are extending lockdowns. Spain and Germany have joined Austria, the Czech Republic and Norway on the list of countries that have started to relax measures in select sectors. Meanwhile, France and the U.K. have extended lockdowns into May. In the United States, Donald Trump released his guidelines for “Opening Up America Again”, which affirms that implementation is at individual Governors’ discretion. States could start a three phase re-opening process once they have a downward trajectory of cases over a 14-day period, its hospitals are able to handle the caseload without “crisis” measures, and it has put in place robust testing of health care workers. It suggests activities be resumed in gradual phases, with many activities being opened but with physical distancing limitations. Restaurants, for example, can only open if they can operate under strict social distancing protocols.
With authority on re-opening various activities resting with Governors, states are coordinating their approaches within regional groupings. Collaborations have formed in the West, Midwest, and Northeast and given divergent infection patterns across the country, re-opening is likely to look quite different across the country.
Leslie Preston, Senior Economist | 416-983-7053
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