Economic Outlook - March 2020
- The novel coronavirus – named COVID-19 – dominated the attention of both the media and markets as the month of February unfolded. What is understood to have originated in Wuhan, China in December 2019 had, by the end of February, spread to six continents. How far and wide the virus will spread is still unknown but it is expected to mute global economic activity. There is a growing expectation that China will experience a recession by the end of the second quarter of 2020. Although it isn’t yet the consensus forecast, the risk the U.S. economy will fall into recession has risen. Much will depend not only on the spread of the virus but also the reaction to it.
- The Fed Beige Book covering data received from January 7 through February 24 conveyed ample concern from firms over the coronavirus, which was mentioned over 50 times in the report. However, there has been little in the way of actual effects on economic activity in the U.S. so far, although there were indications that travel and tourism were already being negatively impacted and there have been some supply chain delays. Nine Districts out of twelve reported a modest or moderate pace of growth, a bit firmer than in January.
- The IHS Markit Manufacturing PMI dropped from 51.9 to 50.8; over 50 indicating expansion. The consensus was 51.5. The composite fell from 53.6 to 49.6, marking its first contraction since 2013. However, a regional Federal Reserve manufacturing index covering most of Pennsylvania, half of New Jersey, and all of Delaware surged in February to the highest level in three years, adding to signs that factories are getting a boost after struggling for the past year due to trade headwinds.
- The Institute for Supply Management (ISM) Non-Manufacturing PMI in the U.S. rose to 57.3 in February from 55.5 in the previous month. This was the strongest pace of expansion (a reading over 50) in the services sector in a year, boosted mainly by new orders – considered by some the best gauge of forward momentum – which rose to 63.1 from 56.2 in January, and employment, which rose to 55.6 versus 53.1 in January.
- U.S. new-home construction remained robust in January and applications to build jumped to the highest level since 2007 as low mortgage rates and a solid labor market continued to fuel housing demand. Residential starts slipped 3.6% to a 1.57 million annualized rate, still the second-fastest pace of the expansion, according to recent government figures. January housing starts exceeded the median estimate in a Bloomberg survey of economists. Permits, a proxy for future construction, advanced 9.2% to a 1.55 million rate, the highest since March 2007.
- Motor vehicle sales fell 0.5% in February to a seasonally adjusted annual rate of 16.8 million, below the 12-month moving average of 16.9 million. Motor vehicle sales fell 1.9% in 2019 overall to an average pace of 16.9 million. Sales for 2020 are expected to be flat with some downside risk due to more restrictive auto lending standards by banks as well as the anticipated impact of the coronavirus.
Sources: Bloomberg LLC, U.S. Commerce Department, Bureau of Labor Statistics, Dow Jones Inc., MarketWatch, Standard & Poors, Federal Reserve Bank, FactSet
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