May 18, 2020
INSIGHTS ON DATA POINTS AND ECONOMIC POLICY
The Trouble With Charting a Pandemic-Induced Downturn
“I have nowhere to go and no place I’m supposed to be. Am I lost or completely free?” -Doug Cooper, author of "Outside In"
Settle in, reader. This week’s edition is a veritable chartbook. There’s nothing we like more than a good chart. A picture tells a thousand words, right?
The trouble with charts these days is that they keep breaking. Take the initial unemployment claims chart, with which everyone is familiar by now. The record claims we are seeing each week dwarf previous records to such an extent that decades of history just look like a flat line in comparison. Last week’s nonfarm payrolls change for April set a monthly record and broke that chart as well.
This week the "Lockdown Recession" came for data on industrial production, which shrank by 11%, the most in a single month since the series began in 1929. Retail figures were not spared either, as the decline in sales for April was 16%, exceeding March’s drop of 8%, both records since series started in 1967.
Sometimes, when the monthly changes are so big, it helps to think in levels. And in that light, the U.S. economy in April was operating at 2010-2012 levels.
Keep in mind retail sales are in dollars, while production and payrolls are level.
Last week, we discussed the breadth of the job loss, as most industries showed record job losses. This week we noticed the same in retail sales. While a few spending categories did well in March, April provided less room to hide for retailers. Only nonstore spending, mostly comprised of online shopping, saw an increase. After an initial spike in March, grocery, healthcare and general merchandise spending all saw sales drop in April. Spending contraction accelerated in electronics, furniture and clothing stores, all at less than half of February’s spending level.
Again, to do another level check, a mere $2 billion was spent on clothing and apparel, compared to the average of $16 billion per month since 1992.
This dramatic drop in spending is perhaps better captured even more dramatically in personal saving rate data released for March. Consumers are saving 14% of their disposable income, an unheard-of level post 1990s.
Expect this to soar to a new record in April, breaking one more graph as government income assistance kicks in while spending and manufacturing output declined even more sharply.
Moving on to industrial production estimates for April, we see the same breadth of loss. For the second month in a row, not a single production category saw an increase from the previous month. The best performance was in computer, audio and video products, which makes sense given the demand for work-from-home necessities, but it was still down 4% from February. Clothing again shows up as an area of weakness (who needs clothes right now?), but was surpassed by worsening declines in durable consumer parts (things used to make cars, computers, etc.), transit equipment and auto products.
Inspecting the weakest sectors shows an economy frozen from making any long-term commitments. Who can buy or build cars, furniture or TVs at a time where the economy changes so vastly week to week?
At this point of the piece you are probably feeling quite hopeless; us too. Hopeless and restless. Especially as the weather (finally) gets warmer, you can feel a palpable urge to get out of the house you’ve been trapped in for months. It is no surprise that states have begun trying to reopen, and not only to satisfy their restlessness. States are struggling to pay unemployment benefits, both from an administration and financial standpoint, and are still waiting on loans from the Federal Reserve and whether or not Congress will give additional aid.
We wonder how successful reopening can be, however, without more progress toward a vaccine or effective treatment for the virus. Will consumers be confident enough about not getting sick to go back out to restaurants or offices?
To try to answer that question, we keep a close eye on a set of high frequency data from Apple, OpenTable and Google. The Apple Mobility Index, which tracks searches for directions, shows a clear tiering of activity based on state status, with those considered “reopened” now returned to the same level of activity as Jan. 13.This measure seems impacted by the fact that reopened states are generally low-density states, making them more amenable to driving. Reopened states have been 30% more active than shutdown states since mid-March (i.e., before they were actually reopened).
To give us an insight into the hard-hit restaurant industry, OpenTable has been providing daily restaurant visit data since the crisis began. While there is a clear divergence between “open” and “closed” states, bookings remain down over 80% from a year ago in those states allowing dining.
We will continue watching this chart to see how quickly activity will return to “normal” as more states reopen, and as people get more comfortable dining together.
Retail has been similarly impacted by the lockdowns. For a view into consumer retail behavior, we are tracking Google data on store visits compared to normal. The data is showing that the number of retail trips in states that are reopening is higher than in those that have remained closed, but not by much. Store visits are down 23% from normal in open states compared to 26% in closed States — dismal in either case.
The lesson here is that consumer behavior will be dictated first by epidemiology, then household economics, not government instructions on what citizens can and cannot do.
The Week Ahead …
The Fed had a busy week of public appearances last week, and will likely again this week. Among those getting attention last week was Chairman Jerome Powell, who last Wednesday struck a dour tone.
“This reversal of economic fortune has caused a level of pain that is hard to capture in words,” Powell said, “while we are all affected, the burden has fallen most heavily on those least able to bear it.”
The dispersion of views within the committee remains of interest, mostly to see if more unorthodox policies are being discussed behind the scenes. To that, look to this Wednesday’s release of the Federal Open Market Committee minutes and ctrl+f search for “yield curve control” or “negative rates.” Powell has continued to talk down negative rates, which seems unlikely, but a first-ever target for Treasury yields appears more in the realm of possibility. The latter has been utilized in recent years by the Bank of Japan, to some success.
Millions continue to file new claims for unemployment each week, and Thursday’s update is expected to continue the trend of painfully slow improvement. As we get further into the crisis, continuing jobless claims, or those who are receiving multiple weeks of unemployment insurance in a row, will become an increasingly notable data point. Small businesses have until June 30 to re-hire workers in order to have their Paycheck Protection Payment loans forgiven, hopefully a turning point for job loss.
CoStar Economy is produced weekly by Robert Calhoun, managing director and senior economist, and Matt Powers, associate director of CoStar Market Analytics in New York City.