In recent weeks, COVID-19 has led to escalating economic concerns. What started as a seemingly sharp, but likely temporary, reduction in Chinese activity, including disruptions to global supply chains, became more worrisome as the coronavirus moved to the rest of the world.
In recent weeks, we’ve seen economic concerns about COVID-19 moving from supply chain disruptions, to expectations of softer global growth, to fear of the impact from social distancing. The odds of a recession have been rising day by day. Some economists believe that we’re already in one.
The markets seem to be vacillating between concerns for the extent of economic damage and hopes the federal government will intervene to stimulate the economy or support certain businesses affected most by the spread of the coronavirus.
COVID-19 fears continued to drive the financial markets. Share prices were volatile and bond yields dove further into record lows.
The Federal Open Market Committee (FOMC) cut rates by .50% in preparation for potential coronavirus impacts.
Equities have fallen on continued news of the virus’ spread, and bonds have rallied as investors seek safety.
As coronavirus cases continue to escalate in several new regions, like South Korea, Italy, Japan, Iran, Singapore and the United States, Raymond James Healthcare Policy Analyst Chris Meekins believes we are now in the midst of a COVID-19 pandemic. The word itself isn’t intended to cause panic, but rather to prompt increased awareness of the potential economic and health effects of this rapidly spreading virus.
Once again, China adjusted the criteria for recognizing COVID-19 cases (over 76,000 reported cases as of February 21, with 2,248 deaths). The immediate direct impact on the global economy is through supply chain disruptions and reduced travel/tourism (in China and throughout Southeast Asia).
The economy was mixed in 2019. Consumer spending, while uneven, was relatively strong, supported by solid fundamentals. Business fixed investment and manufacturing were weak, but not “recessionary weak.” January data are to be taken with a grain of salt – seasonal adjustment is huge and weather (good or bad) can exaggerate – but figures point to more of the same.
The spread of the coronavirus COVID-19 appeared to be slowing, but adjustments in the criteria for recognizing cases changed, boosting the reported number of infections. The change increased anxiety and uncertainty about the economic impact.
The January Employment Report remained consistent with the broader range of labor market indicators. Job conditions are tight. Wage growth has picked up relative to a few years ago, but is not particularly high by historical standards. Thus, the Fed is widely expected to keep short-term interest rates steady in the near term.
With U.S. growth anticipated to be moderate this year, little was expected in the way of fiscal policy (taxes, government spending) and monetary policy (short-term interest rates), but life comes at you fast.
Trade policy uncertainty, slower global growth, a decrease in energy exploration, and problems at Boeing had a negative impact on business fixed investment in 2019. So what’s different in 2020?
Chief Economist Scott Brown discusses the latest market data.
Chief Economist Scott Brown discusses current economic conditions.
Job growth slowed last year, partly reflecting a tighter job market. However, wage growth, while higher in 2019, has remained moderate, much lower than one would expect given the low unemployment rate.
A year ago, the baseline scenario for the economy was moderate growth, but with an elevated level on uncertainty, with risks skewed to the downside. Trade policy uncertainty and slower global growth were dampening factors, but Fed policy was supportive. Investors were willing to look beyond the uncertainty.
Investor optimism remained strong in the first day of trading 2020, but news that the US. Military had assassinated an Iranian general sent share prices lower. The price of oil rose and bond yields fell in response to heightened uncertainty.
Trade policy uncertainty and slower global growth may persist, but moderate expansion is anticipated for the U.S. economy overall in 2020.
We’re still missing a lot of information on the fourth quarter, but recent reports paint a picture of moderate growth in the overall economy. That picture will become clearer as December data arrive next month. The economy was mixed in 2019, and should remain mixed into the first half of the year.
Stock market participants remained optimistic, despite impeachment. The economic data were mixed, but consistent with moderate growth in the overall economy.
The Fed’s policy statement, the revised dot plot, and Chair Powell’s press conference reaffirmed expectations that monetary policy will remain on hold for the foreseeable future. That doesn’t mean that rates won’t be changed. The Fed stands ready to provide further accommodation if conditions warrant. However, the hurdle for a rate increase appears to be relatively high.
The Federal Open Market Committee left short-term interest rates unchanged and indicated that the current stance of monetary policy was “appropriate” to support economic growth, a strong job market and inflation near the Fed’s 2% goal. The revised dot plot showed that 13 of 17 senior Fed officials anticipate no change in rates in 2020.
U.S. economic activity is expected to remain mixed in 2020, with moderate strength in consumer spending and general softness in business fixed investment and manufacturing.
Nonfarm payrolls rose more than expected in the initial estimate for November (+266,000), with upward revisions to the gains for September and October (a net 41,000 higher). In contrast, the ADP estimate of private-sector payrolls rose more modestly (+67,000). What to believe?
There are two broad approaches to forecasting current quarter GDP. Some economists will estimate a number and stick with it. Most will adjust their forecasts as new data arrive. This may seem fickle to the casual observer. Estimates will change week to week and even day to day...
Consumer attitude measures are divided by political affiliations. That’s nothing new. Sentiment readings have long depended partly on which party occupies the White House. Republicans currently rate economic conditions better, just as Democrats did during the Obama years (Independents fall somewhere in the middle).
Shifting trade policy perceptions remained the dominant factor for the stock market.
Theoretically, there is no single variable more important to the economy than productivity, or output per worker. Productivity growth is how we get improved living standards over time. Faster productivity helps to offset the impact of wage growth, supporting gains in corporate profits.
Once again, the economic data reports were dominated by shifting trade policy perceptions, but this time things were flipped. It was the Chinese indicating a possible rollback of tariffs on both sides, sending the stock market higher. However, that was refuted by the White House the next day.
Nonfarm payrolls rose more than expected last month, despite being held back by the strike at General Motors (which subtracted 42,000) and the exit of 20,000 temporary workers for the 2020 census. There is some uncertainty in these data.
The month ended positively for the S&P 500, Dow Jones Industrial Average, NASDAQ and the Russell 2000 Index.
It was a thin week for economic data. Both new and existing home sales were reported lower in September, although the trends are generally higher. Durable goods orders fell 1.1% in September, reflecting the strike at GM and ongoing problems at Boeing. Ex-transportation, orders slipped 0.3%, with mixed results across industries.
The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
As we saw in the Summary of Economic Projections released in September, the Fed’s economic outlook is similar to most outside economists. The baseline scenario is for moderate growth in 2020, with growth in real GDP near 2%, and inflation moving gradually toward the Fed’s 2% goal.
The Treasury Department is expected to report that the federal budget deficit for FY19 (which ended in September) fell short of $1 trillion. That’s a lot of money, especially with an economy running full tilt. However, the government currently doesn’t have any problem borrowing.
The ISM Manufacturing Index fell further into contraction in September, while the Non-Manufacturing Index slowed (consistent with a continued expansion in the overall economy, but at a slower pace). The Employment Report was a mixed bag. Nonfarm payrolls rose by 136,000 in the initial estimate for September, with a net upward revision of +45,000 to July and August.
Currently, a simple yield curve model puts the odds of entering a recession within the next 12 months at about 40%.
Though many market-influencing variables remain in play, the S&P 500 neared all-time high levels in September.
The economic data reports were mixed and had a limited impact on the financial markets. Investors were generally optimistic about potential progress in trade talks and mostly ignored the turmoil in Washington.
As expected, the Fed lowered short-term interest rates and officials remained divided about what to do next. The policy meeting came in a week that saw elevated funding pressures in money markets, which drove the effective federal funds rate above the top of the target range.
The Federal Open Market Committee will meet this week to set monetary policy. It’s widely expected that the FOMC will lower the federal funds target range by another 25 basis points, although that’s not a done deal.
Nonfarm payrolls rose by 130,000 in the initial estimate for August, less than expected and despite a 25,000 boost from census hiring. For production workers, average hourly earnings advanced by 0.5% (+3.5% y/y). Monthly wage and payroll figures can be choppy, but the underlying trend in job growth is lower.
The ISM surveys for August were mixed and the employment report disappointed, but investors were encouraged by prospects for U.S./China trade talks, which are set to resume at a high level in early October.
Recent economic data reports have continued to paint a mixed picture of the U.S. economy, with strength in consumer spending and a mild recession in manufacturing. On top of this, investors remain concerned about several issues, including global growth, geopolitical uncertainties, trade policy, and an inverted yield curve.
The minutes of the July 30-31 Federal Open Market Committee (when the Fed lowered short-term interest rates by 25 basis points) showed that officials were split. “A couple” preferred a 50 basis point cut, while “several” favored no change.
In his speech at the Kansas City Fed’s annual monetary policy symposium in Jackson Hole, Fed Chair Powell discussed the challenge of keeping the U.S. economy “in a favorable space” in the face of significant risks.
The spread between the 10-year Treasury note yield and the 2-year yield briefly dipped below 0. An inverted yield curve signals a strong likelihood of entering a recession within the next 12 months, but the odds of a recession had already been rising as the yield curve has flattened.