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Tags: Coronavirus | manufacturing | economy | pandemic | virus

Patchwork Process of Safely Reopening Threatens Economic Recovery

Patchwork Process of Safely Reopening Threatens Economic Recovery

Joel Naroff By Wednesday, 15 July 2020 02:12 PM Current | Bio | Archive

INDICATOR: June Industrial Production, Import and Export Prices, Help Wanted OnLine and July New York Manufacturing

KEY DATA: IP: +5.4%; Manufacturing: +7.2%/ Import Prices: +1.4%; Fuel: +21.9%; Export Prices: +1.4%; Farm: +1.4%/ HWOL: +5.2 points/ Empire State: +17.4 points; Expectations: -18.1 points

IN A NUTSHELL: “Manufacturing continues to improve as the vehicle sector starts to return to normal production levels.”

WHAT IT MEANS: One thing about math, you can get some very amazing changes when you start with very low numbers. Industrial production soared in June as the manufacturing sector reopened. Leading the way was the vehicle sector, which had shut down almost completely in April. Plants started reopening in May and then ramped up production in June to such an extent that half of the total manufacturing production increases in those two months came from rising assembly rates alone. It is not clear that sales will continue to jump, so don’t expect the July vehicle or manufacturing numbers to look nearly as strong as they were in May and June. Still, the story was not just SUVs. Every single manufacturing group posted a gain in June. That rarely happens. Warm, not hot weather led to a surge in utility production, but oil and gas drilling continued to shut down.

Import prices, which had also cratered in March and April, are starting to rebound. But most of the gain came from the recovery of energy costs. Few other sectors showed significant gains. With imported food costs rising modestly, there could be some easing in the price pressures that we have seen in consumer prices. On the export side, farmers got some decent increases, but their prices are still down sharply over the year.

Firms are starting to hire again and that means they need to advertise, at least a little more. The Conference Board’s Help Wanted OnLine index rose solidly in June and was back to 2017 levels. That said, it remains well below the peak posted in January.

Not surprisingly, the New York Fed’s Empire State Manufacturing Index jumped in July. This is a diffusion index, which we know changes dramatically with the economy reopening. So let’s look at not just the index, but for me the key number, those reporting “lower”. For the general business conditions, employment, production and new orders indices, that number remains in the mid-20% range. That is still high. The jobs index itself was largely flat while hours worked were still falling, though modestly. Worse, expectations are beginning to react to the surging virus and are falling.

IMPLICATIONS: We are at a crucial point in the recovery. The virus is getting out of control in a number of large states and new cases are even beginning to rise in most states that didn’t reopen early. School openings are unclear, sporting events are being run without spectators, downtown office building remain largely ghost towns in many major cities and our politicians cannot decide what is the best way to proceed. With federal guidance limited, local decision making down to school district levels is predominating. The resulting patchwork process of safety and reopenings is showing signs of faltering. I wrote in April that I expected a major decline in the spring quarter and a sharp, but not nearly as large rise in the fall. That is likely to still be the case, though the third quarter gain could be less than many had hoped for. It will still be record-setting, but not the nearly twenty percent rise that many forecasters expect (Blue Chip consensus is roughly 18%). Forecasting economic data these days is much more daunting than in the past. Even then, I often just had my award-winning cat pick a number. As an economist who is a member of just about every major forecasting panel, I have to come up with numbers each week. But truthfully, most of us are largely guessing. Thus, when markets move on results that are above or below expectations, those reactions are irrational since the numbers often are based on models that don’t work well under the current circumstances. So, try not to get too excited by what seem to be good numbers or too distressed by bad ones. Over time, we might discover that they were neither that strong nor that weak.

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

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JoelNaroff
We are at a crucial point in the recovery. The virus is getting out of control in a number of large states and new cases are even beginning to rise in most states that didn’t reopen early.
manufacturing, economy, pandemic, virus
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2020-12-15
Wednesday, 15 July 2020 02:12 PM
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