Steep fall in US economy and worse is to come
Data from the US Commerce Department and the Fed released yesterday show that the American economy entered a steep decline in March with still worse to come this month.
Retail sales, in seasonally-adjusted terms, fell by 8.7 percent from a month earlier, the biggest such fall since records began in 1992. Sales at clothing stores were down by more than 50 percent.
The percentage decline in spending on motor vehicles, furniture and electronics was in the double digits, the Commerce Department reported.
An empty parking lot is seen as retail stores are closed, Wednesday, April 15, 2020, in Whitestown, Indiana. (AP Photo/Darron Cummings)
Figures released by the Fed showed that industrial production, including manufacturing, mining, oil and natural gas production, dropped by a seasonally-adjusted 5.4 percent. This was the biggest monthly decline since 1946 when US industry was switching from war production.
In an indication of the collapse of economic confidence, the National Association of Home Builders reported that its housing market index for April had fallen to 30 from 72 the previous month. A level of 50 indicates neither expansion nor contraction.
The Fed’s “beige book,” based on anecdotal evidence from businesses around the country, said US economic activity had “contracted sharply and abruptly” and companies expected conditions to worsen with further job cuts. Over the past month almost 17 million workers have registered for unemployment benefit.
Any notion there will be a rapid recovery once the immediate effects of the pandemic pass—and there is no indication of that as the US death toll continues to rise—is being dispelled.
The senior economist at Oxford Economics, Lydia Boussour, said the drop in retail sales was “just the beginning of the consumer pull-back.”
“Plummeting consumer confidence, collapsing employment, and lockdown restrictions have compounded into an extraordinary and multi-faceted shock to consumer spending and brought the economy’s main engine to a sudden halt.”
Manufacturing output fell by 6.3 percent. The largest decline was in the production of motor vehicles and parts, which fell 28 percent, while the production of business equipment dropped 8.6 percent.
Oxford Economics issued a note to clients yesterday warning that factory activity would fall even further this month. “We anticipate industrial production will shrink by nearly 15 percent from peak to trough,” it said.
In a further indication that worse is to come, the Empire State manufacturing survey, which measures business confidence in New York, fell to minus 78.2 this month. This far exceeds its previous low of minus 34.3 recorded in February 2009 in the midst of the global financial crisis.
“The message is that it will be a brutal spring quarter for the economy,” Joshua Shapiro, an economist at the consulting firm MFR, told the Financial Times .
He said while there would a bounce back when the economy reopened, “returning to the levels of activity that prevailed pre-crisis is going to take a long time, and indeed probably will be measured in years for the most affected sectors.”
Craig Johnson, the president of the retail consulting firm Customer Growth Partners, told the Wall Street Journal the March decline was “literally unprecedented.” But April would the “cruellest month” because it was only in mid-March that the closure of large retail outlets began.
The International Monetary Fund has warned in its latest economic outlook that the world is entering the most significant contraction since the Great Depression, expected to amount to at least $9 trillion over 2020 and 2021. This is equivalent to the economic output of Germany and Japan combined. It has forecast that the US economy will shrink by 5.9 percent this year.
One of the clearest expressions of the crash now underway in the global economy is the crisis in the oil industry. Despite an agreement earlier this week by major oil producers to cut production by 9.7 million barrels a day, its price has continued to fall.
The executive director of the International Energy Agency (IEA) Fatih Birol, said: “The oil industry is experiencing a shock like no other its history.”
With oil prices now down to as low as $20 a barrel, many firms are facing bankruptcy, particularly in the US.
Whiting Petroleum filed for bankruptcy at the beginning of the month. Many of the US shale-oil producers that sprung up in the last decade, as oil prices rose, are certain to follow.
Rystad Energy has said that at $30 a barrel more than 70 US oil and gas producers would have problems meeting interest payments on their debts this year. At $20 a barrel for crude this would rise to about 140 companies.
In its monthly oil report, the IEA said demand in April would drop by 29 million barrels a day, equivalent to 29 percent of global oil consumption in 2019.
It said the global economy was “under pressure in ways not seen since the Great Depression” as businesses failed and unemployment rose, with activity in the transport sector falling “dramatically almost everywhere.”
One oil trader told the Wall Street Journal that if you bought a cargo today “you are not sure you will ever find a buyer for it because everyone has too much oil.” He expected that in a couple of weeks oil markets would become “dysfunctional.”
But amid the economic devastation caused by the COVID-19 pandemic and the misery for billions of workers around the world, there is money to be made… big money.
Earlier this week, the Financial Times reported on a London investment fund that had made a total of $2.6 billion in trades during March. More than $800 million came from trades in derivatives based on market volatility with a further $1.8 billion resulting from trades in share market, gold and credit derivatives.
The richest man in the world, Jeff Bezos,
the founder of Amazon, has increased his
wealth by $24 billion this year, taking his
total fortune to more than $138.5 billion.
His former wife MacKenzie Bezos, who was left with a 4 percent share in Amazon as a result of her divorce settlement, has seen her net worth climb by $8.2 billion this year to $45.3 billion.
As a result of the increase in online shopping, shares in Amazon have been rising and jumped by 5.3 percent on Tuesday.
Bloomberg reported that while the wealth of the world’s 500 richest people in its Billionaires Index had taken an initial hit, it had surged by 20 percent since March 23.
The official mantra is “we’re all in this together.” But as one financial analyst told the news agency, the wealth gap “is only going to get wider with what’s going on now.”
5.2 Million Weekly Jobless Claims Bring Coronavirus Total to 22 Million Jobs Lost
3:29
The ranks of the unemployed swelled by millions last week.
New applications for unemployment hit 5.245 million in the week ended April 11, Labor Department data showed Thursday. Economists had forecast around 5 million claims.
Last week’s initially reported total of 6.606 million was revised up slightly to 6.615 million. For the March 28 week, 6.9 million workers filed claims. The week before, 3.3 million. The new report brings the total of jobs lost to the coronavirus crises to just over 22 million in the course of four weeks.
The four week moving average of claims, typically looked to as a less volatile and more accurate measure of the labor market, jumped to 6.066 million, an increase of nearly 2.6 million.
Thursday’s report showed a total of 12 million Americans received unemployment payments in the week ended April 4, a new record high. This number, which is reported with a week’s lag, represents an increase from 7.4 million the prior week. With so many jobs being lost each week, it’s likely the new claims will continue to push the total number of people receiving unemployment benefits higher.
The CARES Act, passed to offset the economic impact of the coronavirus and stay-at-home orders, expanded the ranks of those eligible to file claims for unemployment benefits and raised the amount paid to unemployed workers. Self-employed workers and independent contractors can now file for benefits, expanding the number of claims.
New claims for state unemployment benefits are a proxy for layoffs. Released weekly, they are some of the few real-time indicators of economic conditions.
Actual job losses may be higher than the most recent figures reveal. Applications in many states have been hampered by websites and phone lines failing due to the rapid rise in the volume of claims.
Employers are slashing their payrolls to try to stay afloat because their revenue has collapsed, especially at restaurants, hotels, gyms, movie theaters and other venues that depend on face-to-face interaction. Auto sales have sunk, non-healthcare related manufacturing has ground to a halt, and factories have closed.
More than 90 percent of the U.S. population is now under stay-at-home orders, which have been imposed by most U.S. states. This trend has intensified pressure on businesses, most of which face rent, loans and other bills that must be paid.
The number of new claims fell in some of the biggest states. New claims in California was fell by 257,848. Ohio claims fell by 68,973, Michigan fell by 169,234, and New Jersey fell by 74,236. Virginia’s figure dropped 40,646, Texas’ declined 41,600.
Claims in New York rose by 51,498, likely because many workers who lost jobs had trouble getting benefits earlier because the state’s systems for accepting new applications were overwhelmed. Claims were also up sharply in Colorado, rising 58,747.
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