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Tags: Coronavirus | Financial Markets | economy | coronavirus | slowdown | fed

Economy Appears Strong Enough to Survive Coronavirus Slowdown

businessman superhero clutching money and opening shirt to reveal United States flag representing a strong U.S. economy
( Mike2focus /Dreamstime)

Joel Naroff By Wednesday, 04 March 2020 03:43 PM Current | Bio | Archive

INDICATOR: February NonManufacturing Activity and Private Sector Jobs

KEY DATA: ISM (NonMan.): +1.8 points; Orders: +6.9 points/ ADP: +183,000; Large Businesses: 133,000

IN A NUTSHELL: “Going into any potential coronavirus slowdown, the economy is in good shape.”

WHAT IT MEANS: Last week I noted that the potential for a recession depends upon the strength of the economy going into a possible coronavirus outbreak and the extent of any outbreak in this country. As we saw last week and now this week, the current state of the economy is good. While the Institute for Supply Management (ISM) reported yesterday that manufacturing activity expanded a little slower in February, today it pointed to continued, even growing strength in the nonmanufacturing portion. The ISM NonManufacturing index rose decently led by a strong increase in new orders. Hiring improved and order books fattened. If we weren’t facing a potential virus-driven slowdown, I would be saying the economy might be poised to grow faster.

As for the job market, it too looks like it is still in very decent shape. On Friday we get the government’s take on payroll gains, but today ADP weighed in with its estimate of private sector job growth. It was actually pretty good. The warm weather allowed construction activity to flourish and job gains in that sector were solid. The one disappointment in the report was the relatively modest gains in small and mid-sized companies. Most of the growth has been coming from large companies and while there is nothing wrong with that, we need the smaller companies to join in. They are usually the key to continued strong job gains.

MARKETS AND FED POLICY IMPLICATIONS: It is too soon to see much if any impact from the problems in China on U.S. economic activity. So the solid and even strong February numbers are hardly a surprise. But the spring data should be telling. There is a very high likelihood that second quarter growth will take a major hit. Supply chain issues, the slowing of demand in countries dealing with the virus and, very simply fear should all start showing up in the numbers. The question is how far into this year will the effects last. The U. S. may have been slow in reacting, but hopefully that will change. But as the virus spreads and more importantly, as the death toll rises, which it unfortunately it is likely to do, then human nature will step in. The fear factor is what we have to watch for. It will not only restrict activity but may lead to drastic actions to control the epidemic if it becomes widespread. It is at that point the economy would falter and a recession becomes inevitable. Of course, if there is no widespread virus epidemic, then given the current strength of the economy, we are likely to escape a recession, though we still might have a negative quarter.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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JoelNaroff
Going into any potential coronavirus slowdown, the economy is in good shape.
economy, coronavirus, slowdown, fed
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2020-43-04
Wednesday, 04 March 2020 03:43 PM
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